SBA Franchisee Failure Rates by Brand, 2011

Data: Small Business Administration

WASHINGTON — The Small Business Administration today released to Blue MauMau its newest list of loan failure rates of franchisees.

 In an industry in which franchisee performance at a unit level is typically hidden, this list gives a sense to bankers and now to franchise buyers how well franchise owner-operators in a chain are doing. The SBA provides this list to loan officers of its most trusted lenders and banks throughout the country.

Franchisee loan pay-back rates are tracked by brand for the nine-year period from October 1, 2001 to September 30, 2010. The list runs from the worst failure rates to the best.

Ideally, to be informed about where to put one's money, a franchise buyer should look at the profit of a brand's average store and compare the rate of return on the investment with all other brands' returns on investments. But unfortunately, few in the industry are willing to give an earnings claim. And the lists of best franchises to buy in the various media do not consider their profitability.

One of the better options is to use the list as a tip sheet on how to bet at the franchise races. It should also be noted that less than 585 franchise brands out of 3,500 in North America are on the list.

The Administration instructs Blue MauMau of the following limitations regarding this list.

Attached is an excel spreadsheet analysis of the performance of all 7(a) and 504 business loans which were identified as being made to a franchise, and which were disbursed between October 1, 2001 and September 30, 2010, and which included a statistical sample of at least ten (10) individual loans for any given franchise. We wish to point out, however, that it may not include all of the companies which are part of a franchise. This is because the lenders are not required to provide information as to whether a borrower is or is not a franchisee. The Agency does not certify as to the accuracy of this information because the identification of any given loan as belonging to a particular franchise is the responsibility of the lender, not SBA, and is entirely voluntary.

The table below is interactive, being both sortable and filterable

Click on the column heading to sort from high to low or low to high. Clicking on the header also allows the column to filter values. For example, disbursements of loans below 50 can be filtered out, leaving only those brands with 50 or more visible.

Dollar amounts for disbursements are in thousands (x $1000). These amounts reflect combined SBA 7(a) & 504 Loan performance by franchise brand. Data based on loans approved from 10/01/01 to 09/30/10, which were assigned to a franchise brand and subsequently disbursed, are limited to 10 or more disbursed loans for that nine-year period.


Proven Business Model

Wonder what the correlation between high failure rates and marketing slogans which include known red flags, viz. Be in Business for Yourself but not by Yourself, is.

Analysing SBA failure rates

There are some surprises here that offer an opportunity to clarify what should be taken into account when analysing this list [eg Quiznos at 34%] when typically prospective franchisees will be looking for confidence indicators.  I don't really suppose SBA applications for a Q franchise have higher levels of rejection but here they are just an example in the maze of understanding what we have in this list and even whether lenders might get confused.

What factors should be considered when drawing a line on failure rates and what might be the influence of investment levels from the low-end to something like an Action Coach which does not appear on the list and at last count had a failure rate in excess of 90%, and high-end investment levels?

SBA Failure Rate: Franchisors misled by franchisees!!

Clearly what we have here are franchisors who have been taken by their franchisees.  Franchisees who have held themselves out to be intelligent, hardworking business people who obviously are nothing of the sort.  I feel for these franchisors who now face the embarrassment of a failed system when, in fact, it is unscrupulous franchisees who lied, cheated and stole in order to purchase one of these franchises, put up all their assets, lose their homes, life savings and families just to publicly humiliate these poor, unsuspecting franchisors. 

I think the franchisors should unite and file suit against these cowardly franchisees and shake them down to their very cores!!

How am I doing "Guest", GB and Jd?

BTW:  CONGRATS!! to my franchisor who has now officially made it into the top 25!!  You guys must be so proud!! Keep up the good work.

Sarcasm? OS?

May I suggest that you comment on your experience. Obviously, you have plenty of knowledge on the SBA underwriting practices. But to call it all a big fraud doesn't help anyone. The SBA should be educated on why they have such a high failure rate with the concepts listed. Why is Huntington or Atlanta Bread Co on the list of poor franchise performers? Figuring out Quiznos is a no brainer but I was surprised to see some of the others. Why are they so bad? Were there any tell tale signs for the franchisee to signal them to run for the hills before losing it all?

Re: Jerry and my Sarcasm

The "tell-tale signs" were unavailable.  As BMM has written in one of these two articles regarding SBA loans, franchisors have been hiding the information needed for a potential franchisee to make a truly informed decision - information that even "attorney due diligence" can't uncover without the express help of existing franchisees (and we all know how willing those franchisees are in handing out their P&L's to complete strangers). 

The SBA, from the Administrator on down, are inept, incompetent and incapable of performing oversight.  They are great at closing their eyes and throwing your (taxpayer) funds out the window because - well, their job is to lend, so they get to keep their jobs by showing how much money they lend to this "great employment machine called small business". 

Jerry, "Why is Huntington or Atlanta Bread Co on the list of poor franchise performers?"  Simple, the "proven business model" only proves that it doesn't really work.  All one needs is to see the average gross revenues broken down by first, second and third year and, given the breakdown of the business model (COGS, personnel etc - which the franchisor KNOWS) a potential franchisee will then understand if there truly is a ROI respectable enough to purchase the sight.  When the numbers are negative and that you need a heck of a lot more working capital than you have or are willing to dump into these things, then the only thing "proven" about these systems is that you should run away.

Lastly, Jerry, there are around 300 franchises, out of the 500 or so listed, that have a 20% failure rate or higher.  What does that say about these "proven business models"?. . .Poor selection of franchisees?  Yeah, that must be it.

SBA Loan Guarantees

We see the IFA promote the need for the SBA to lighten up on credit underwriting. Franchisors who sell a "Proven Business Model" should be able to put their money where their mouths are. I believe the SBA should only lend to franchisees if their franchisors are willing to provide a guarantee to subsidize the SBA's blanket guarantee. Say, 20% where the SBA provides 60% and the remaining to be held by the underwriting bank. Franchisors selling a "Proven Business Model" would benefit by creating a new revenue source from the loan guarantee fees.

This type of lending structure would weed out the miscreant franchisors from the pool of proven franchised concepts. After all, the franchisor should be well capitalized to support their franchisees. Associations such as AAHOA, IAFD, & CFA should publically rate the concepts to let the financial community know their quality ratings to predict future performance and repayment. The rating can also be applied to Wall Street loan securitizations of SBA and franchise assets.


After reviewing the list I noticed Quiznos mentioned twice, once as Quizno's Sub at #122 with a 37% failure rate and once as Quiznos at #141 with a 34% failure rate. Are we to add those together to give Quiznos a total of 71% failure as a brand? Or are there two seperate Quiznos companies? If we added them together that would put them in 10th place tied with Golf Etc. of America. Just not sure why the discrepency since I haven't noticed it with other brands. Thanks

Financial Performance Results need to be mandated

I am a third year law student who was a research assitant to Professor Marvin Rooks on a recently published article making a case for mandating financial performance results (Item 19) in FDDs. I crunched the 2008 SBA defualt numbers to show that a franchise who does not make Item 19 claims is 55% more likely to defualt on a SBA loan than a franchise which does make such Item 19 claims. The article can be found at:

Thanks for Evidence

Keith, doesn't your argument show that the SBA should not offer guarantees to franchisors that won't provide real item 19 claims?  Wouldn't that be an easier change to bring about, rather than trying to change the FTC Franchise Rule -yet again.

SBA follow up

Yes, Michael, the SBA route is an option as well. Since SBA loans only cover 1 of 6 franchise opportunities, the increased default rate on non Item 19 producing franchise opportunities via SBA loans are just a snapshot of the overall increaesd risk of such franchise opportunities. Hopefully, the FTC can also change the rule to bring more transparancy to the market. For a true free-market system to work, there needs to be proper disclosure so the cream of the market can get proper capital while the pretenders go bankrupt.

Re: SBA follow-up

Actually, Keith and Michael, you are both barking up the wrong tree.   Getting the FTC to change the Franchise Rule will be close to impossible.  However, FTC rules do not bind the SBA or SBA lending practices.  The SBA can require, all on their own, historical data be used to analyze loan/franchise viability - which would then force financial disclosure if the franchisor wants access to SBA funds. 

Much easier to force the SBA to change given the extent of their losses and their duty to protect taxpayer funds as opposed to forcing the hand of the Franchisor's Trade Commission.

What has the SBA program to do with disclosures? The program

is the product of effective IFA lobbying (FranPac!), It is a sop to a big conntributor. The taxpayers pick up its cost. That's called loss distribution.

Trying to infuse the product of influence purchasing with some notion of fair play ignores the realities of the situation. The SBA and the FTC don't care a hoot about deal quality, disclosure (whether honest or not) or relationship management. Section 5 of the FTC Act does not require relationship regulation even if a franchsie rule was promulgated pursuant to that part of the Act Act.

If it were otherwise there would be an enforcement track record. There is no enforcement track record worth even talking about. That is the reality. Reality in this political environment can never be amended by people who lack the financial ability to buy some government for themselves. The politics of pity is one of the most ridiculous notions on the planet. Pity is bstowed when it is in some powerful group's fnancial interest to have someone else (the government) bestow pity.

That's interesting but it doesn't necessarily prove casue and

effect. I am willing to bet there is a greater correlation with first time business owners and lack of related industry experience than Item 19. It's can't be a bad thing but requiring it is not the only answer. One has to not allow taxpayers to back loans for people with no experience in their related industry.

Before purchasing a Quiznos...

If you're considering purchasing a Quiznos Franchise AND have ATTENDED a Quiznos-sponsored Seminar in your city contact me at

I'm a 7-year (old-timer) Quiznos franchisee veteran who owns the highest sales store in Greater Milwaukee, number two store in Southeastern Wisconsin, and a top 5 store in the state. Prior to owning this location I spent 22 years developing commercial real estate and had the foresight to get out prior to the bubble bursting.

Before you commit to this brand you need to do your homework and know all the realities you're about to encounter.


Scott Espeseth, Owner
Quiznos - New Berlin, Wisconsin