SBA Loan Failure Rates for Franchises by Brand, 2009
WASHINGTON (Blue MauMau) - The Small Business Administration has just released its newest list of failure rates by franchise brand from October 1, 2000 until September 31, 2008. This is a list of general SBA 7(a) and real estate and equipment 504 loans to franchise owners. It gives a sense to lenders and buyers on how well franchisees in a chain are financially able to perform. This is the list that the agency provides to loan officers of its most trusted lenders and banks throughout the country.
Loan officers and franchise buyers realize that there are thousands of franchise opportunities to buy from, so why mess with the riskiest?
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.
So what is one to do?
One of the better alternatives is to use this banker's list to check the performance of loans as a tip sheet on how to bet at the franchise races. It should also be noted that these are less than 500 franchise brands out of three to four thousand that exist in North America. But those other brands are not counted because each does not receive a significant number of SBA-backed loan disbursements.
Trade publications typically use unknowable, secret formulas to calculate their best franchises to buy lists. They make considerable money from these lists from franchisors. Entrepreneur magazine recently sued its editor for allegedly taking the Franchise 500 secret formula with her to use in her new job for the creation of a Franchise 300 list at All Business.
The Administration instructs Blue MauMau of the following 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, 2000 and September 30, 2008, 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.
Here is the updated 2008 list. Dollar amounts are in thousands (000s).
See just the Google spreadsheet of the SBA Loan Failure Rate List here
Thanks for that. I must admit that I've recently been looking into the
<a href="http://franchiseexpo.com/">business opportunities</a> over at http://franchiseexpo.com and I was concerned about that at first read. Regardless, a great article.
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Thanks to Mr. Blue Mau Mau for providing this updated default list of SBA guaranteed franchise loans.
BUT, it should be pointed out that this list could be misleading and harmful to prospective franchisees who may interpret these SBA default rates as the indication or reflection of success OR failure rate of the franchise, itself. that they are investigating as part of their due diligence obligation.
Many franchises are financed with home equities or 40l's or 403's and the failure rate on these types of loans is not a matter of public record that is accessible to prospective franchisees.
Perhaps, the only way to offset a misleading impression is for the prospective franchisee to consider that all transfers in Item 20 of the FDD reflect failures of the transferring franchisees to one degree or the other.
I believe that it is Michael Webster, our esteemed Canadian attorney, who posts often on Blue Mau Mau. who suggested that this might be a good idea.