Franchise Failure Rate: What 148,000+ SBA Loans Reveal

The franchise failure rate is 16.0% based on 94,000+SBA 7(a) loans analyzed by FranchiseLens. That means roughly 1 in 6franchise-backed loans were charged off, contradicting the industry claim that "90% of franchises succeed." However, failure rates vary dramatically by category, brand, and investment size. Some franchise categories exceed a 20% charge-off rate while others stay below 7%.

Where the "90% success rate" myth comes from

The franchise industry frequently cites a statistic that 90% or even 95% of franchises succeed. This figure traces back to studies from the early 2000s that defined "success" as any franchise unit still operating under the brand. By that measure, a franchisee who lost money every year but kept the doors open counted as a success.

SBA loan data provides a more objective lens. When a franchise-backed loan is charged off, it means the borrower could not repay and the lender wrote off the remaining balance. It is not a perfect proxy for business failure (some charge-offs involve refinancing or personal circumstances), but it is the largest standardized dataset available on franchise business outcomes.

Overall franchise charge-off rate

Across 94,000+ resolved SBA 7(a) franchise loans (those paid off or charged off, spanning 2000 to 2024), the aggregate charge-off rate is 16.0%. This means roughly 1 in 6 resolved franchise loans was charged off. The remaining ~84% were paid in full. (Loans still active and current are excluded, since their outcome is not yet known.)

For context, the overall SBA 7(a) charge-off rate across all small businesses (not just franchises) is approximately 17%. Franchises default at a slightly lower rate than the small business average, though the difference is modest and varies significantly by category and brand.

Failure rates by franchise category

Category matters more than almost any other variable. The spread between the safest and riskiest franchise categories is enormous:

Retail franchises lead with a 16.1% charge-off rate, nearly four times the rate of lodging franchises. This aligns with what we see in the SBA explorer: restaurant franchises face high fixed costs (rent, labor, food waste) that amplify revenue shortfalls into rapid financial distress.

Failure rates by investment size

Investment size also correlates with outcomes, though not in the direction most people assume:

• Under $100K investment: approximately 15.3% charge-off rate across the franchise brands in our database. Lower-cost franchises tend to be home-based or service businesses with lower overhead, but carry slightly more risk than larger investments.
• $100K to $500K: approximately 13.5% charge-off rate. This range includes most brick-and-mortar retail and QSR concepts and represents a moderate risk level.
• Over $500K: approximately 10.1% charge-off rate. Higher capital requirements correlate with lower default rates, likely because lenders apply stricter underwriting and borrowers have stronger financial profiles.

Contrary to what many assume, larger franchise investments actually carry lower charge-off rates. The $500K+ tier has the lowest default rate at approximately 10.1%, likely reflecting stricter lending standards and more experienced operators. You can filter by investment range using our franchise screener.

Brands with the lowest failure rates

Among brands with at least 100 SBA loans on file (enough for statistical significance), these ten have the lowest charge-off rates:

Every brand on this list has a 0% charge-off rate across 100+ SBA loans. They span automotive, food, fitness, senior care, and home services. The common thread: consistent unit economics that let franchisees service their debt reliably.

Brands with the highest failure rates

On the other end of the spectrum, these brands (with 100+ loans) have the highest charge-off rates:

Several of these brands have gone through bankruptcy (Quiznos), experienced massive unit-count declines (Curves, Planet Beach), or operate in categories with high capital exposure and cyclical demand. Charge-off rates above 40% indicate systemic problems within a franchise system, not just individual franchisee mismanagement.

How to check the failure rate for any franchise

FranchiseVerdict tracks SBA 7(a) charge-off rates for every franchise brand in our database. Here is how to use this data in your research:

1. Search for the brand on FranchiseVerdict and look at the SBA section of its profile page.
2. Check the charge-off rate relative to its category average. A brand with a 15% rate in a category that averages 25% is outperforming.
3. Look at the loan volume. A charge-off rate based on 500 loans is far more reliable than one based on 15. We flag brands with limited loan data on their profile pages.
4. Compare across brands using the comparison tool to see how your target brand stacks up against competitors in the same category.
5. Cross-reference with FDD data. A low charge-off rate combined with strong unit growth (Item 20) and disclosed revenue (Item 19) paints the clearest picture. Read our guide on how to read an FDD.

Methodology

This analysis uses SBA 7(a) loan data obtained through FOIA requests. The dataset includes 94,000+ franchise-identified loans originated between 2000 and 2024. We define "failure" as a loan that was charged off (the lender wrote off the outstanding balance after the borrower defaulted). Loans that were paid in full or are current are classified as non-failures.

This methodology has limitations. Not all franchise businesses use SBA financing, so the dataset skews toward franchises in the $100K to $1M investment range. Very low-cost franchises (under $50K) and very high-cost franchises (over $5M) are underrepresented. For a detailed explanation, see our methodology page.

The bottom line

If someone tells you franchises have a 90% success rate, they are either misinformed or selling you something. The real number is closer to 84%based on the largest dataset available. That is better than many assume, but it is still a far cry from a guaranteed outcome. The brands and categories you choose matter more than the franchise model itself. Do the research before you write the check.

Related franchise research

Continue your research with our failure rates by industry, is buying a franchise worth it, and how much franchise owners make.