SBA Franchise Loan Default Rates by Industry: What 27,652 Loans Reveal

Most franchise buyers rely on two sources of information: the franchisor’s marketing materials and the Franchise Disclosure Document. Both are controlled by the franchisor. SBA loan performance data is different. It comes from the federal government, tracks actual loan outcomes, and the franchisor has zero ability to influence the numbers.

We analyzed 27,652 SBA-backed franchise loans across 764 brands with five or more loans on record. The result is one of the most comprehensive independent risk assessments available to franchise buyers — broken down by industry category, with enough loan volume in each group to draw meaningful conclusions.

Why SBA Default Rates Matter for Franchise Due Diligence

When the Small Business Administration guarantees a loan to a franchisee, it tracks whether that loan performs or defaults. A “default” means the borrower stopped making payments. A “charge-off” means the lender gave up on collecting and wrote off the remaining balance. Both are bad outcomes, but charge-offs represent a complete loss.

Why should you care? Because this data reflects real-world outcomes for real franchise operators — not projections, not franchisor estimates, not survivorship-biased testimonials. If a franchise brand has 200 SBA loans and 40 of them defaulted, that is a 20% default rate. No amount of polished marketing can explain that away.

For a deeper look at how SBA lending works in the franchise context, see our SBA franchise financing guide.

The Full Category Breakdown: 21 Franchise Industries Ranked by Default Rate

Here is the complete dataset across all 21 franchise categories we track. Categories are ranked from highest to lowest average default rate.

Category	Brands (5+ Loans)	Avg Default Rate	Avg Charge-Off Rate	Total Loans
Landscaping & Outdoor	12	2.9%	1.2%	399
Home Services	103	2.9%	1.9%	3,410
Real Estate Services	7	2.8%	1.2%	163
Technology & Communications	7	2.5%	1.2%	122
Food & Beverage	34	2.1%	1.5%	1,065
Senior & Home Care	30	2.0%	1.1%	1,078
Fitness & Wellness	63	2.0%	1.2%	2,985
Retail	34	1.9%	1.0%	882
Cleaning & Restoration	48	1.8%	1.1%	1,312
Fast Casual Restaurant	36	1.2%	0.7%	755
Business Services	53	1.2%	0.8%	2,203
Financial & Insurance	6	1.2%	1.3%	202
Childcare & Education	46	1.1%	0.6%	1,523
Health & Beauty	60	0.8%	0.4%	1,917
Coffee & Bakery	28	0.8%	0.3%	1,433
Quick Service Restaurant	63	0.7%	0.5%	2,830
Pet Services	22	0.6%	0.4%	945
Automotive	28	0.5%	0.1%	687
Casual Dining	21	0.4%	0.3%	386
Hospitality & Travel	38	0.1%	0.1%	2,636
Sports & Recreation	25	0.1%	0.0%	719

The overall average default rate across all 27,652 loans is 1.4%. Remarkably low — and a testament to the franchise model compared to independent small businesses. But that average hides a lot of variance.

The Highest-Risk Categories: What Is Going On?

Three categories stand out at the top of the default rate table: Landscaping & Outdoor (2.9%), Home Services (2.9%), and Real Estate Services (2.8%).

Home Services is the most revealing because it has the largest sample: 103 brands and 3,410 loans. This is not a small-sample anomaly. The 1.9% charge-off rate — the highest of any category — means lenders are losing money on a meaningful percentage of these loans. The nature of home services work (seasonal demand, labor-intensive, local market dependency) creates operating conditions that are harder to stabilize than, say, a fast food restaurant with a drive-through and predictable traffic.

That said, a 2.9% default rate is still not catastrophic. Compare that to franchise failure rates across industries and you will see that SBA-backed franchisees generally outperform the broader franchise population. The SBA’s underwriting process filters out the most undercapitalized applicants before they ever get funding.

Real Estate Services and Technology franchises both carry elevated default rates, but with only 7 brands and fewer than 200 loans each, the sample sizes are thin. Those numbers deserve attention but not panic.

The Lowest-Risk Categories: Patterns Worth Noting

At the bottom of the table, five categories have default rates under 1%:

Category	Default Rate	Charge-Off Rate	Total Loans
Sports & Recreation	0.1%	0.0%	719
Hospitality & Travel	0.1%	0.1%	2,636
Casual Dining	0.4%	0.3%	386
Automotive	0.5%	0.1%	687
Pet Services	0.6%	0.4%	945

Hospitality & Travel is especially notable: 2,636 loans and a 0.1% default rate. That is near-zero risk from a lending perspective. Hotel franchises dominate this category, and they benefit from national brand recognition, centralized reservation systems, and revenue management tools that independent operators cannot replicate.

Quick Service Restaurants (0.7% across 2,830 loans) and Coffee & Bakery (0.8% across 1,433 loans) also perform exceptionally well. These are mature, operationally refined models where the playbook has been tested tens of thousands of times. Understanding the unit economics of these brands helps explain why their loan performance is so strong.

How to Actually Use This Data

Category-level default rates give you useful context, but the real value is at the brand level. Here is how to put this data to work during your due diligence process.

Step 1: Check the Brand’s Individual Default Rate

Category averages smooth out the extremes. Within Home Services (2.9% average), you will find brands with 0% defaults alongside brands north of 15%. Ask your SBA lender or search the SBA’s FOIA data for the specific brand you are evaluating.

Step 2: Look at Loan Volume

A brand with 3 SBA loans and 0 defaults has a 0% default rate, but that number means almost nothing. Brands with 50 or more loans give you a statistically meaningful signal. Brands with fewer than 10 loans are essentially anecdotal.

Step 3: Cross-Reference with Item 20

Item 20 of the FDD shows unit openings, closures, and transfers. SBA default data and Item 20 closure data measure different things, but they should tell a consistent story. If a brand shows low SBA defaults but high Item 20 closures, that is a red flag — it may mean franchisees are closing but still personally paying down their loans. If both numbers are high, the signal is unambiguous.

Step 4: Understand Default vs. Charge-Off

A default is a missed payment event. A charge-off is a total loss. The gap between these two numbers tells you something about recovery. Home Services has a 2.9% default rate and a 1.9% charge-off rate — meaning roughly two-thirds of defaults end in total loss. Compare that to Automotive: 0.5% default, 0.1% charge-off. When Automotive franchisees do default, they typically have enough collateral or cash flow to partially repay the loan. This distinction matters when you are assessing downside risk.

Step 5: Factor in Your Own Financial Position

SBA default rates reflect the experience of a broad population of borrowers with varying levels of capital, experience, and local market conditions. If you are well-capitalized and have relevant industry experience, your personal risk is likely lower than the category average. If you are stretching to meet the minimum investment and have no background in the industry, your risk is higher. Read through our franchise financing options guide to make sure your capital structure is solid before signing anything.

Ready to compare franchise opportunities side by side? Browse our franchise database or use our comparison tool to evaluate brands based on investment, fees, and performance data.

Red Flags: When Default Rates Should Stop You Cold

While 1.4% is the overall average, some individual brands have default rates above 20%. We flagged brands with default rates above that threshold as warranting extra due diligence. Here is what to look for.

A brand with a 25% default rate and 100+ SBA loans is telling you that one in four franchisees who borrowed money through the SBA could not pay it back. That is not a category problem — it is a brand problem. Dig into the franchise’s financial statements to understand where the business model breaks down.

Common causes of elevated brand-level default rates include:

• Unrealistic revenue projections that lead franchisees to overborrow
• High fixed costs (rent, equipment leases) that crush operators during slow periods
• Weak territory protection leading to cannibalization between nearby units
• Rapid expansion that outpaces the franchisor’s ability to support new operators
• Industry disruption that eroded the brand’s competitive position after loans were originated

Some of these factors are fixable. Others are structural. The SBA data does not tell you why loans defaulted — just that they did. Your job is to figure out the why. That means talking to current and former franchisees, reviewing franchise failure rate statistics, and stress-testing the financial model under pessimistic assumptions.

The Stability Sweet Spot: 50+ Loans and Sub-10% Defaults

Here is a simple filter that eliminates a lot of noise: focus on brands with at least 50 SBA loans on record and a default rate below 10%.

Why 50 loans? Because that is enough lending history to be meaningful — not just a handful of early adopters who happened to succeed. And a sub-10% default rate across that volume means the vast majority of franchisees who borrowed money were able to repay it. No guarantees, but it removes one of the biggest unknowns from the equation.

Quick Service Restaurant, Business Services, Childcare & Education, and Health & Beauty categories are full of brands that clear this bar. Cross-reference them with their FDD disclosures and you will have a solid shortlist to work from.

What SBA Data Cannot Tell You

This analysis has real limitations. SBA default data only covers franchisees who used SBA-backed financing — not those who used conventional loans, paid cash, or used alternative funding like 401(k) rollovers. The SBA population may skew toward borrowers with moderate net worth (wealthy buyers often skip SBA lending entirely), which means the default rates may not reflect the experience of all franchisees.

The data also lags. A loan originated three years ago that defaults today shows up in the current data, but it reflects decisions made under different economic conditions. Keep that in mind when evaluating brands in industries that have shifted meaningfully in recent years.

Finally, the data does not capture franchisee satisfaction, profitability, or quality of life. A franchisee can make every loan payment and still be miserable. SBA default rates are one signal — a powerful, independent, hard-to-manipulate signal — but they are not the whole picture.

Putting It All Together

SBA loan performance data gives you something rare in franchise research: an independent, government-tracked measure of financial outcomes across hundreds of brands. Use it early in your process as a screening tool. Categories with consistently low default rates (QSR, Pet Services, Automotive, Hospitality) give you a macro-level tailwind. Higher-rate categories like Home Services and Landscaping are not automatic disqualifiers, but they demand sharper scrutiny.

At the brand level, the 50-loan / sub-10% default filter is your friend. Flag anything above 20% for deep investigation. And always cross-reference with Item 20 closure data and the brand’s financial statements — triangulating risk from multiple angles is how you avoid getting blindsided by a single misleading metric.

No single data point should make or break your franchise decision. But 27,652 data points from the federal government? Ignoring those would be a mistake.