SBA Data
Understanding SBA Charge-Off Rates
By Usman Khan, founder · Updated
SBA 7(a) loan data is the closest thing to a franchise “report card” that exists. When a franchise brand has dozens or hundreds of government-backed loans on record, the charge-off rate tells you how often those businesses failed to repay. Lenders and the press often call this a “default rate”; FranchiseVerdict says charge-off rate, because it counts loans the lender wrote off, not late payments.
What is an SBA 7(a) loan?
The SBA 7(a) program is the U.S. Small Business Administration's primary lending program. Banks make the loans and the SBA guarantees a portion (typically 75% to 85%), which reduces the lender's risk and makes it easier for small businesses to qualify.
Franchise businesses are among the largest borrowers in the 7(a) program. When someone opens a franchise location, they frequently use an SBA loan to cover the initial investment: build-out costs, equipment, franchise fees, and working capital.
Because these loans are government-guaranteed, the SBA publishes detailed records of every loan made, including whether it was repaid in full or charged off. This data is released through FOIA (Freedom of Information Act) requests and forms the basis of the SBA lending analysis on FranchiseVerdict.
How charge-off rates are calculated
A charge-off rate measures how often loans end in a charge-off (the lender writes off the remaining balance as a loss) versus being paid in full. The formula FranchiseVerdict uses:
This denominator only includes resolved loans: those that have reached a final outcome. Loans that are still being repaid (active loans) are excluded because their final outcome is unknown. A brand with 100 resolved loans and 10 charge-offs has a 10% charge-off rate.
This approach produces a more accurate measure of actual loss experience compared to calculations that include active loans in the denominator. However, it means that newer franchise brands with mostly active (unresolved) loans may have charge-off rates based on a small sample of resolved loans.
What is a “good” charge-off rate?
Context matters, but these are the five bands every charge-off rate on this site is coloured and labelled by:
| Charge-Off Rate | Band | What it means |
|---|---|---|
| Under 5% | Excellent | Fewer than 1 in 20 resolved loans charged off. |
| 5% to under 10% | Good | Between 1 in 20 and 1 in 10 resolved loans charged off. |
| 10% to under 15% | Average | Between 1 in 10 and about 1 in 7 resolved loans charged off. |
| 15% to under 20% | Elevated | Between about 1 in 7 and 1 in 5 resolved loans charged off. Worth investigating, especially on a large loan count. |
| 20% or more | High Risk | 1 in 5 or more resolved loans charged off. A serious warning signal on a meaningful sample. |
These benchmarks assume a meaningful sample size (at least 10 resolved loans). A brand with only 3 resolved loans and 1 charge-off shows a 33% charge-off rate, but the sample is too small to draw conclusions.
What charge-off rates do not tell you
- Why a loan failed. A charge-off could result from a bad location, an undercapitalized owner, a market downturn, or a flawed franchise concept. The SBA data does not distinguish between causes.
- Current system health. All-years charge-off rates are cumulative (from fiscal 1991, where the SBA's 7(a) FOIA files begin, in the FranchiseVerdict dataset). A brand that had problems 15 years ago but has since restructured will still carry those historical charge-offs.
- Non-SBA outcomes. Not every franchise uses SBA financing. Brands popular with cash buyers or conventional lenders may have fewer SBA loans on record, which means the charge-off rate reflects a subset of all locations.
Which years each rate covers
- All years. The headline rate on a brand page counts every resolved loan in the SBA's 7(a) FOIA files.
- Loans approved FY2014 to FY2019. Brand pages also show the rate for loans approved in those years, with its own loan count. Loans that young can still fail, so treat it as a trend, not a final count.
- Loans approved FY2010 to FY2019. The charge-off report compares systems, lenders and states on this wider window, so its column will not match a brand page's FY2014 to FY2019 figure.
How to use SBA data in your research
- Start with the charge-off rate and loan count. A low charge-off rate on a high volume of loans is a strong signal. A low rate on 3 loans is not meaningful.
- Compare within the category. A 12% charge-off rate means something different in quick-service restaurants (capital intensive, competitive) than in home services (lower investment, less competition). Use the category view to compare peers.
- Cross-reference with FDD data. SBA charge-off rates are most useful when combined with the financial data in the FDD. A brand with strong revenues (Item 19) and a low charge-off rate is a very different proposition than one with no Item 19 data and a high charge-off rate.
- Check the lender. Some banks specialize in franchise lending and have better underwriting. The bank directory shows lender-level performance.
Explore SBA data on FranchiseVerdict
Every brand page on FranchiseVerdict includes an SBA lending section (when data is available) showing charge-off rate, total loans, loan volume, and average loan size. For a system-wide view of SBA franchise lending, visit the SBA Explorer.