Is Buying a Franchise Worth It? SBA Data Says...

The honest answer is: it depends on the brand, the category, and your capital. SBA loan data shows a 16.0% overall charge-off rate across 94,000+ franchise loans — meaning roughly 1 in 6 franchise-backed loans defaulted. But top-rated brands with strong unit economics have charge-off rates near 0%, while the worst-performing categories exceed 20%. Buying a franchise can be a sound investment if you pick the right brand, go in with adequate capital, and do your due diligence using actual data instead of franchisor marketing.

The case for buying a franchise

Franchising offers several real advantages over starting an independent business from scratch:

• Proven operating system. You get a tested business model, supply chain relationships, training program, and brand recognition that would take years to build independently.
• SBA lending access. Banks are more willing to lend for franchise businesses because the model is documented and the brand has a track record. SBA 7(a) loans are a primary funding mechanism for franchise purchases.
• Brand demand. Established brands like McDonald's, Chick-fil-A, and Jersey Mike's generate foot traffic from day one. An independent sandwich shop has to earn every customer.
• Peer network. Franchisees in the same system can share best practices, and the franchisor provides ongoing support for operations, marketing, and technology.

The case against buying a franchise

The advantages are real, but so are the costs and constraints:

• Ongoing fees add up fast. Most franchises charge 4% to 8% of gross revenue in royalties, plus 1% to 4% for advertising. On $1M in revenue, that is $50K to $120K per year paid to the franchisor before you cover any operating expenses.
• Limited autonomy. Franchisors control menus, pricing, suppliers, store layout, marketing, and hours of operation. You are buying a business with guardrails, not full entrepreneurial freedom.
• The 16.0% charge-off rate is real. Despite the industry narrative that "90% of franchises succeed," our analysis of 94,000+ SBA loans shows a 16.0% charge-off rate. The success story is more nuanced than franchise brokers suggest. Read our full franchise failure rate analysis.
• Franchise brokers have conflicts of interest. Most franchise brokers earn commissions from the franchisor, not from you. Their incentive is to close a deal, not to steer you toward the best-performing brand for your situation.

What the SBA data tells us about franchise ROI

SBA 7(a) loan performance is the closest thing to a standardized franchise success metric that exists. Here is how the numbers break down:

Investment-tier rates are computed from the SBA 7(a) charge-off rates of franchise brands in our database, grouped by FDD Item 7 investment midpoint.

Larger franchise investments actually tend to have lower charge-off rates, likely because lenders apply stricter underwriting and operators bring more experience and capital. But the differences across investment tiers are less important than the specific brandyou choose.

Categories with the best and worst returns

Category selection is one of the strongest predictors of franchise success. Based on SBA charge-off data:

• Best performers: Healthcare (3.8%), lodging (6.6%), and senior care (5.2%). These categories benefit from experienced operators, recurring demand, and in some cases regulatory barriers to entry.
• Worst performers: Retail (16.1%), full-service restaurants (16.7%), and pet services (14.1%). These categories face high fixed costs, intense competition, and sensitivity to economic downturns. For a full breakdown, see our franchise failure rate by industry article.

Red flags to watch for in any franchise

Before investing in any franchise, watch for these warning signs in the FDD and during your due diligence:

1. No Item 19 disclosure. If the franchisor does not disclose financial performance data, ask why. Roughly 40% of brands skip Item 19, and non-disclosure often correlates with weaker unit economics.
2. High franchisee turnover. Item 20 of the FDD lists all current and former franchisees. If a significant number have left the system in the past three years, that is a red flag. Count the exits and compare them to the total unit count.
3. Litigation history. Item 3 discloses any lawsuits between the franchisor and franchisees. A pattern of franchisee lawsuits suggests systemic problems.
4. Declining unit count. Item 20 also shows the total number of franchised and company-owned units over the past three years. If the system is shrinking, find out why before you buy in.
5. High SBA charge-off rate. Check the brand on FranchiseVerdict's SBA explorer. A charge-off rate significantly above the category average is a data point you cannot ignore.
6. Pressure to sign quickly. Any franchisor or broker who pressures you to sign before doing full due diligence is not acting in your interest. The FTC requires a 14-day waiting period between receiving the FDD and signing the franchise agreement.

How FranchiseVerdict helps you decide

FranchiseVerdict exists because franchise research should not depend on self-interested brokers or franchisor marketing. Here is how to use the platform:

• Browse 5,000+ brands with FDD data, SBA loan performance, and Verdict grades. Filter by investment range, category, and performance metrics.
• Compare brands side-by-side on investment, revenue, fees, SBA charge-off rate, and unit growth.
• Explore SBA data for any brand to see its charge-off rate, loan volume, and risk grade.
• Get franchisee contacts to talk to real owners before you invest. Item 20 contact lists verified and organized for efficient due diligence.

The data will not make the decision for you, but it will tell you what the numbers say before you write the check. Start with the browse page or search for a specific brand.

The bottom line

A franchise is worth it if you pick the right brand, go in with enough capital, and treat due diligence like a job interview where you are the one asking the questions. It is not worth it if you are buying a brand name on faith, relying on a broker to tell you it is a good deal, or expecting passive income from a business that needs an owner-operator. The data exists to make this decision with confidence. Use it.

Related franchise research

Continue your research with our franchise failure rate analysis, McDonald's franchise cost breakdown, and how much franchise owners make.