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20 Industries With the Best SBA 7(a) Track Records
We’ve analyzed data from the Small Business Administration to showcase which industries have the lowest levels of defaults and charge offs for SBA 7(a) loans.
SBA 7(a) loans have long been a lifeline for aspiring and established small businesses alike, providing crucial funding to fuel growth, innovation, and stability. For lenders, these loans are a valuable way to support the backbone of the American economy.
However, as with any financial product, risk plays a pivotal role. Industries with a history of lower default risk are often seen as less of a gamble, which can translate to better financing terms for businesses operating within them.
That’s not to say risk is a deal breaker — far from it. Thanks to the SBA’s guarantee of 85% for 7(a) loans under $150,000 and 75% for larger loans, a lender’s risk is significantly mitigated for these financing options. That means better terms for small businesses all around.
Setting the Stage: The Data
Our analysis dives into data sourced from the U.S. Small Business Administration, which was compiled into a report by CapTec. Focusing on the top 100 SBA industries from 2020 onwards, this report evaluates historical performance by monitoring loans initiated under the standard guaranty program between 2008 and 2012, tracked until June 30, 2023.
The charge-off percentages offer a window into the frequency of loan defaults.
This information is crafted to provide a broad overview and isn't a deep dive into specific business cases or individual scenarios. Still, it may serve as a foundation both for setting borrower expectations and flagging potential issues inherent to some sectors to lenders.
The Big Picture
Across the landscape of the report, nearly 40,000 loans paint a comprehensive picture of the SBA 7(a) loan landscape. About 7.5% of these loans were charge offs, a figure that underscores the inherent risks and rewards of lending to small businesses.
There’s a huge difference in charge offs between shorter- and longer-term loans, though. Those loans with a term of 10 years or less had a default rate of nearly 20%, compared to the 4% default rate for loans with terms between 10 and 25 years.
Listicle Section: Top 20 Industries With the Lowest Defaults
Even if 7.5% seems high, it may be comforting to know that there are a number of standout industries where the percent of charge offs was far, far lower.
The table below provides a snapshot of the top 20 industries with the lowest overall default rates, offering both business owners and lenders a reference point in the vast ecosystem of small businesses.
# | Industry Name | Charge Off % |
|---|---|---|
1 | Insurance Agencies and Brokerages | 1.79% |
2 | Funeral Homes and Funeral Services | 2.11% |
3 | Veterinary Services | 2.45% |
4 | Couriers | 2.56% |
4 | Services for the Elderly and Persons with Disabilities | 2.56% |
6 | Homes for the Elderly | 3.05% |
7 | Offices of Lawyers | 3.07% |
8 | Lessors of Nonresidential Buildings | 3.54% |
9 | Custom Computer Programming Services | 3.55% |
10 | Offices of Dentists | 3.76% |
11 | Machine Shops | 3.87% |
12 | Offices of Therapists and Audiologists | 3.95% |
13 | Offices of Real Estate Agents and Brokers | 4.07% |
14 | Pharmacies and Drug Stores | 4.11% |
15 | Private Mail Centers | 4.23% |
16 | Engineering Services | 4.35% |
17 | Broilers and Other Meat Type | 4.37% |
18 | Offices of Mental Health Practitioners | 4.48% |
19 | Other Computer Related Services | 4.58% |
20 | Offices of Physicians | 4.75% |
Implications for Small Business Owners
For entrepreneurs and small business owners, understanding where your industry stands in terms of default rates can be invaluable. It can provide a competitive edge when seeking financing, allowing you to potentially leverage your industry's track record for better terms or to anticipate and address lender concerns proactively.
Of course, if your industry is mired in a higher amount of defaults, that’s not necessarily cause for concern or panic. It just means that, as a borrower, you will need to effectively present a strong business plan to showcase your viability to your lender.
Implications for Lenders
While the historical data provides a lens into past performance, it's crucial for lenders to recognize that the past is not always the prologue. However, the data clearly show that
An industry's default rate is a composite, influenced by sector-specific dynamics, regional variations, individual business performances, and the rigor of loan underwriting processes. It's a tool in the lender's arsenal, for sure, but it should be used in conjunction with a broader analytical approach.
If you’re a lender, you already know this. That’s why loan underwriting involves a deep look at a business’s specific strategy, history, credit rating, market share, and so on.
Conclusion
SBA loans have a lot to offer small businesses, and — again — the risks to lenders are significantly offset by the government’s guarantee. Still, it’s important to understand where your business’s industry falls in terms of risk.
Even if your business operates within an industry deemed high risk, don’t let this stop you. There are clear, tangible steps you can take to ensure your SBA loan closes with minimal hiccups and advantageous terms.
For starters, drop your information in the form below. We’ll leverage our marketplace to shop your loan to many, many lenders to ensure you get the best terms out there for your business.