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25 Worst Franchises to Buy, 2008

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KY sub shop. Photo/Blue MauMau

LEXINGTON, Ky. (Blue MauMau) - Sub shops, car care and quick printers dominate the list of worst franchises to buy, according to a Small Business Administration list given to lenders.

Blue MauMau once again gained access to this banking list and is publishing it to help inform franchise investment decisions. Taken straight from an SBA's loan performance list covering the years from 2000 to 2007, this is the list that the agency provides loan officers of its most trusted lenders and banks throughout the country.

This is how the list is used. It is a quick filter of loan risk, of what franchise brands to navigate around and what looks less risky. For example, with a 48% failure rate on SBA loans, Mr. Goodcents Sub has the dubious honor of being at the top of worst investments. Compare the 48% to another sub chain, Subway's, which had only 4% failures out of 1,974 disbursed loans.

The good news for Quiznos is that it didn't make the worst 25 list. However, it was #26, worthy of a dishonorable mention. Blimpie, a sub maker that belongs to Kahala Corp's group of franchising firms, ranked considerably worse at #5. 

The loan officer and the franchise buyer realize that there are thousands of franchise opportunities to buy from, so why mess with the riskiest? Unless there is a miraculous reason why concepts with high failure rates are a great investment, the franchise buyer may want to move to other brands with lower failure rates.

Each franchise brand listed has Small Business Association loans with at least 51 disbursements, a substantial number. Having larger figures for the disbursement of loans filters out most of the small franchise systems. What is left is largely major franchise brands with the worst failure rates of nearly 115 big brand concepts.

These are the worst franchise brands, where franchise owners struggled more than others to pay back their SBA loans. To put it another way, this group is the lowest performing quintile (20%) by loan failure rate of major franchise brands in the SBA list.

So here it is: The list of 25 of the worst franchise investments, ranked from worst to bad, from the viewpoint of being a lender of SBA loans and wanting to ensure the best chance of having the loan repaid by franchisee borrowers.

FRANCHISE BRAND

Disburse #

Disburse $

Failure %

Chgoff %

1.  MR. GOODCENTS SUB' AND PASTA

52

$6,935

48%

13%

2.  ALL TUNE AND LUBE

77

$8,523

48%

14%

3.  PHILLY CONNECTION

63

$7,755

48%

20%

4.  COTTMAN TRANSMISSION

163

$20,582

46%

14%

5.  BLIMPIE

158

$26,208

37%

13%

6.  CORNWELL QUALITY TOOL COMPANY,INC

53

$3,217

36%

9%

7.  GOLF ETC.

67

$9,362

36%

12%

8.  KABLOOM

52

$7,455

31%

7%

9.  MATCO TOOLS (RENT TOOLS)

316

$29,630

30%

9%

10. ATLANTA BREAD COMPANY

61

$32,979

30%

9%

11. CARVEL ICE CREAM

76

$16,757

26%

2%

12. TCBY

52

$6,675

23%

9%

13. FAST FRAME

68

$7,050

22%

8%

14. GYMBOREE

51

$6,427

22%

7%

15. BEEF O'BRADY'S

81

$26,924

21%

2%

16. MEINEKE DISCOUNT MUFFLER

184

$49,512

21%

3%

17. MINUTEMAN PRESS

168

$24,935

20%

5%

18. ALPHAGRAPHICS

72

$23,127

18%

6%

19. TACO DEL MAR

62

$8,935

18%

6%

20. POSTNET

92

$9,893

17%

4%

21. MARBLE SLAB CREAMERY

144

$30,585

17%

3%

22. FOX'S PIZZA DEN

76

$5,411

17%

3%

23. SIR SPEEDY PRINTING CENTER

51

$15,465

16%

3%

24. PETLAND

85

$40,054

15%

5%

25. PLAY IT AGAIN SPORTS (RETAIL SPORTS)

53

$8,268

15%

3%

26, Dishonorable Mention: QUIZNOS

1,802

$266,732

14%

3%

 

Explanation: This is ONLY a list of franchises that have received SBA loans. It does not account for conventional, non-SBA loans. Banks aren't about to release their conventional loan statistics anytime soon. The Small Business Administration notes that the failure rate equals the number of liquidation plus number charged off divided by total number disbursed. The disbursement dollars are for the total amount of loans disbursed x $1,000. Franchise networks that have received less than 10 disbursements (small business loans) have been taken out to leave a list of some 460+ franchise systems from 2000 to 2007.

It's not our intent to just ding. Blue MauMau will shortly release the best franchises to buy  -- this time strictly sorted by major franchise brands with the lowest failure rate list from the SBA.

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