- Front Page
- Biz Tools
Utah's top SBA official touts buying a franchise as buying into a proven business model.
Stan Nakano tells the Salt Lake Tribune that franchising:
[I]s a good alternative for somebody who might have limited resources. You have guidance in the startup phase, and there’s a business model that has already proved to be successful.
The SBA provided no documentation for the claim, probably because both as a matter of law and as a matter of empirical evidence... the SBA claim is demonstrably false.
There is no legal requirement that anyone have a "proven" business model in order to franchise.
There have even been franchises which were "concept only" and franchisors who began franchising before they had even a year in business, and franchisors who sold a different business model when they began to franchise.
The SBA itself does not officially vouch for any success rate, and the requirement to get an SBA loan relates to control by the franchisor and has nothing to do with the viability of the franchise as an investment.
The SBA has long spoken out of both sides of its mouth on the matter.
When necessary, SBA officials make statements such as Nakano.
But when challenged to produce hard data, the SBA admits that the claims are bogus: the SBA Inspector General found that franchised businesses have a higher loan default rate than non-franchised businesses.
Tribune reporter Cathy McKitrick goes on to give 2 links for further information: the franchisor trade group IFA, and the SBA website.
More reliable statistics can be found by reviewing some of the actual studies, as reported here on BMM.