Franchise Failure Rate by Industry: 19 Categories

Franchise failure rates vary dramatically by industry. Based on FranchiseVerdict's analysis of 169,000 SBA 7(a) loans, casual dining restaurants have the highest charge-off rate at 36.2%, while childcare and education franchises have the lowest at 13.2%. The overall franchise charge-off rate is 23.1%, but choosing the right industry can cut your risk by more than half — or double it.

Complete category breakdown

The following table shows SBA 7(a) charge-off rates for all 19 major franchise categories in our database, sorted from highest to lowest failure rate. The charge-off rate represents the percentage of franchise loans in each category that defaulted.

The spread between the worst and best categories is nearly 3x: casual dining at 36.2% versus childcare and education at 13.2%. Category selection alone can cut your risk of franchise failure by more than half.

Why some categories fail more

The categories at the top of the failure list share several structural characteristics:

Casual dining restaurants (36.2%)

Casual dining carries the highest fixed costs in franchising: large real estate footprints, extensive build-outs, high labor requirements (servers, cooks, managers), and significant food waste. When revenue dips even 10–15%, the operating leverage works against you. The category has also faced sustained pressure from fast casual competitors and delivery-first models.

Fitness and gym (31.8%)

Gym franchises require expensive equipment, large retail spaces, and long lease commitments. Revenue depends on membership volume, and member churn is high. The COVID-19 pandemic accelerated a shift toward home fitness that has not fully reversed, adding structural risk to the category.

Print and shipping services (29.4%)

This category has faced secular decline as printing volumes fall and shipping services face intense competition from e-commerce logistics providers. Brands in this space have had to reinvent their business models, with mixed success.

Why some categories succeed more

The categories at the bottom of the failure list also share common traits:

Childcare and education (13.2%)

Demand for childcare is inelastic — working parents need it regardless of economic conditions. Regulatory requirements create barriers to entry that protect established operators. Revenue is recurring and predictable (monthly tuition), and customer switching costs are high because parents do not change childcare providers casually.

Senior care and healthcare (14.8%)

An aging population creates growing demand. Healthcare services often have recurring revenue models (ongoing care, not one-time transactions) and benefit from referral relationships with medical providers. Labor is the primary cost, but the absence of expensive real estate needs keeps overhead manageable for many models.

Automotive services (16.3%)

Cars require maintenance regardless of the economy. Automotive franchises benefit from recurring customer relationships (oil changes, tire rotations, inspections) and relatively predictable demand. The technical skill requirements create a modest barrier to entry for independent competitors.

How to use this data when choosing a franchise

Category-level data is a starting point, not an endpoint. Here is how to incorporate it into your franchise research:

1. Start with categories that match your risk tolerance. If you are financing a significant portion of the investment, categories with charge-off rates below 20% give you better odds of being able to repay the loan. Use the browse page to filter by category.
2. Then drill into specific brands. A great brand in a risky category can outperform a mediocre brand in a safe category. Check each brand's individual SBA charge-off rate on its FranchiseVerdict profile.
3. Compare within the category. Use the comparison tool to stack brands side-by-side on investment, revenue, fees, and SBA performance. A brand with a 15% charge-off rate in a category that averages 25% is outperforming its peers.
4. Validate with franchisee conversations. SBA data tells you about loan performance; talking to actual franchisees tells you about the day-to-day reality. Use Item 20 contacts or our contacts product to reach current and former owners.

If I were investing: an editorial perspective

If I had $500K to invest in a franchise today, the category data would immediately eliminate casual dining from my consideration set. A 36.2% charge-off rate is not a risk — it is a coin flip weighted against you. I would start with the three lowest-risk categories: childcare and education (13.2%), senior care (14.8%), and automotive services (16.3%).

Within those categories, I would look for brands with at least 50 SBA loans on file and individual charge-off rates below 5%. A brand that beats its category average by half or more has demonstrated something systematically better about its model — better franchisee selection, better unit economics, or better operational support. The category gives you the baseline. The brand gives you the edge.

The one exception where I would consider a higher-risk category: QSR, specifically brands with 0% SBA defaults and strong revenue disclosure. A well-run QSR brand can overcome the category average because the category is dragged down by hundreds of small or poorly managed systems. The data shows that category selection gets you to the 20-yard line. Brand selection gets you to the end zone.

Methodology

Charge-off rates in this article are calculated from SBA 7(a) loan data obtained through FOIA requests. The dataset includes 169,000 loans across all franchise brands, categorized by FranchiseVerdict into 19 industry groups based on the primary business activity of each franchise system. A loan is classified as "charged off" when the lender wrote off the outstanding balance after borrower default. Category assignments are based on the franchise brand's primary business model and may differ from NAICS codes or SBA industry classifications. For our complete methodology, see the methodology page.

Related franchise research

Continue your research with our overall franchise failure rate analysis, how much franchise owners make, and best franchises under $50K.