SBA Data
Understanding SBA Default Rates
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 default rate tells you how often those businesses failed to repay.
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 default rates are calculated
A default 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% default 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 default rates based on a small sample of resolved loans.
What is a “good” default rate?
Context matters, but here are general benchmarks based on the full SBA 7(a) franchise lending dataset:
| Default Rate | Assessment | Context |
|---|---|---|
| < 5% | Strong | Well below the program average. Indicates a mature, stable system. |
| 5% to 15% | Average | Roughly in line with the overall SBA franchise lending average. Not alarming on its own. |
| 15% to 25% | Elevated | Above average. Worth investigating further, especially if loan volume is high. |
| > 25% | High risk | More than one in four loans ended in failure. A serious warning signal. |
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% default rate, but the sample is too small to draw conclusions.
What default 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. Default rates are cumulative (since 2000 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 default rate reflects a subset of all locations.
How to use SBA data in your research
- Start with the default rate and loan count. A low default 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% default 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 default rates are most useful when combined with the financial data in the FDD. A brand with strong revenues (Item 19) and a low default rate is a very different proposition than one with no Item 19 data and a high default 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 default rate, total loans, loan volume, and average loan size. For a system-wide view of SBA franchise lending, visit the SBA Explorer.