What Are The Best Franchises to Start With an SBA 7(a) Loan?
While you might already know that SBA loans are available to many franchises, you might not know how they stack up against each other. In this article, we’ll take a look at some of the most successful franchises that can be funded with SBA loans and compare their performance based on their loan default rates.
The 6 Best Franchises by SBA Loan Default Rates
Here are some of the franchises with the lowest default rates— however, it’s important to keep in mind that some of these franchises are smaller (meaning that only a few SBA loans have been issued to franchise borrowers) so the data may not be a truly accurate representation of the franchise’s quality.
Straight Shot Express: This 24/7, overnight transportation company can boast the lowest default rate of any SBA-approved franchise, at 0%. However, only 17 loans were issued for Straight Shot Express locations between 2000-2016, so it could simply be that the company hasn’t yet had enough SBA-funded franchises to see one fail.
Farmer Boys: This quick service restaurant chain, based in Riverside, California, has a default rate of only 4.35%. In practice, this means that that only 1 out of the 23 Farmer Boys franchises given an SBA loan from 2000-2016 experienced a default.
IntsyPrints: This printing and marketing company has a default rate of 6.25%, meaning that 1 in 16 franchises granted SBA loans from 2000-2016 experienced a default. So, while the percentage of defaults is pretty low, so is the number of franchises— which is why anyone interested in being an IntsyPrints franchisee should definitely do some more research before making any major decisions.
Comfort Keepers: An in-home senior care services company with locations in 48 states, Comfort Keepers has the same SBA default rate as InstyPrints, at 6.25%. However, Comfort Keepers franchises were issued 32 SBA loans during the same time period, which seems to give its loan default rate a slightly higher degree of accuracy.
Zeppe’s: An Italian-style pizza parlor known for its thin fresh-baked pizza crusts, calzones, wings, and a variety of lunch specials, Zeppe’s franchise locations experienced only 2 SBA loan defaults in the years between 2000 and 2016, giving it a super-low default rate of 8.7%.
Buffalo Wild Wings: Perhaps the best-known business on this list, Buffalo Wild Wings is known for its sports bar atmosphere and 12 delicious sauces. Plus, it an can boast an extremely low SBA loan default rate of 8.89%
How Some of the Best Known Franchises Stack Up
While the companies mentioned above may have super-low SBA loan default rates, with the exception of Buffalo Wild Wings, they’re not well-known to the general public. To get some perspective, let's compare their SBA default rates to the better known companies below:
Subway: Subway’s SBA loan default rate of 23% may not be as impressive as Zeppe’s or Buffalo Wild Wings, but, with its national brand recognition, it still could be a great investment. Plus, Subway franchisees took out nearly 3,000 SBA loans between 2000 and 2016— so if anything, we know that it’s SBA loan default is likely to be a highly accurate predictor of an individual franchise’s chances for success.
Orangetheory Fitness: It may help thousands of Americans transform their bodies, but owning an Orangetheory Fitness is unlikely to help franchisees transform their finances. With an SBA loan default rate of 76.47%, Orangetheory ranks as the 6th worst franchise in the U.S., making it a substantially risky investment for potential fitness entrepreneurs.
Pita Pit: This pita chain sure is tasty, but it’s high rate of SBA loan defaults doesn’t bode well for potential franchisees. While only 35 franchises took out SBA loans from 2000- 2016, but of those 35, 23 defaulted on their loans, giving the business a whopping 65% default rate.
Johnny Rocket’s: Another somewhat well known franchise, with over 300 locations worldwide, Johnny Rocket’s burgers may be good, but their SBA loan default rate certainly is not. At 65%, Johnny Rocket’s matches Pita Pit’s abysmal default rates, so anyone looking to invest in a franchise might want to think twice.
Miami Subs: Anyone who lived in Florida in the 1990s and early 2000s likely ate at Miami Subs more than once— but the tragic death of the owner, combined with a series of financial missteps, ended up taking the company down a rough financial path. Considering those factors, it’s not hard to see why the franchise had a massive 62.5% SBA loan default rate in the years between 2000 and 2016. The chain, which had nearly 200 locations in the late 90s, was re-branded as Miami Grill in 2014, and now occupies 31 locations, mostly throughout Florida.
Atlanta Bread Company: Atlanta Bread Company may not be particularly well known today, but it did have a good run, appearing in many major cities (as well as variety of smaller markets) in the early and mid-2000s. However, that good run was marred by a legal scandal involving the two South African brothers who managed the company, which experts say indirectly lead to the franchise’s staggering 60% SBA loan default rate. The chain, which peaked at 170 locations in 2004, had only 32 locations as of July 2017.
Wendy’s: We’ll end this list on a positive note, with one of the best-known fast-food chains in America; Wendy’s. In addition to having great brand recognition, Wendy’s SBA loan default rates indicate that it could be a pretty good investment; with a 13.64% SBA loan default rate between the years of 2000 and 2016, purchasing a Wendy’s franchise could set you up for life. It’s important to keep in mind, however, that only 22 SBA loans were issued for Wendy’s locations during the 16-year data period, which could make its loan default rate a pretty unreliable predictor of the business’s success.