Who Has the SBA the Highest Loan Default Rates Among Franchise Brands?

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Last week's Wall Street Journal had a story about the franchise systems with the highest default rates for Small Business Administration-backed loans over the past decade.

The Journal reports that franchisees of Quiznos, Cold Stone Creamery, Planet Beach Franchising, and Huntington Learning Centers were among the "bottom 10" brands with the highest rates of defaults ("more than double the rate for SBA borrowers who invested in all other chains") during the period from 2004 through 2013.

SBA-backed loans remain one of the most popular ways of obtaining financing for franchisees.

Through the SBA, borrowers are able to obtain loans that are guaranteed by the U.S. government.

The Journal reports that the 10 brands that make up the list of franchises with the highest default rates represent a total of $121 million in total defaults from 2004 through 2013.

Rounding out the list of the 10 brands with the highest default rates are Aamco Transmissions, Curves International, Cici's Pizza, Minuteman Press, Sylvan Learning, and Cartridge World.

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I read that article too, with interest. The SBA doesn't make the information publicly available, the WSJ had to get it with a FOIA request. This is because it can be misinterpreted. Defaults don't necessarily mean business failures, because the loans might be re-financed. Also, this is snapshot in time, and these rates can change quicky.

Item 20 of the FDD states the turnover rates of franchised and company-owned units, going back three years. This is more relevant.

Nevertheless, it would be better to be on the list of the lowest SBA default rate than the highest!

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