When evaluating a franchise opportunity, buyers often focus on brand recognition, marketing support, and growth potential. But one of the most important—and frequently overlooked—metrics is SBA loan performance. Specifically, default rates can reveal the real-world financial viability of franchise systems.
SBA loans are widely used to finance franchise purchases, and the repayment history of those loans tells a powerful story. High default rates don’t automatically mean a franchise is “bad,” but they do signal elevated risk and deserve careful scrutiny.
Here’s what recent data tells us about several well-known franchise brands and what it means for prospective buyers.
What SBA Default Rates Really Measure
An SBA loan default occurs when a borrower fails to repay the loan, forcing the lender to charge it off and seek recovery from the SBA guarantee. High default rates typically indicate one or more of the following:
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Low average profitability at the unit level
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Oversaturation in certain markets
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High startup or operating costs
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Weak franchisee support systems
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Structural issues in the franchise model
For buyers, default rates offer real, objective insight beyond marketing materials or franchise disclosure documents.
Franchise Systems with Notable Default Challenges
Noble Roman’s Pizza – ~92% Default Rate
This is one of the highest default rates seen in any franchise system. A rate approaching 92% indicates systemic issues with unit-level profitability and sustainability. Buyers should approach with extreme caution and carefully analyze unit economics and historical closures.
Cold Stone Creamery – ~31% Default Rate
Cold Stone has strong brand recognition, but the business model can be challenging. Ice cream is highly seasonal in many markets, and the upfront investment can be significant relative to the profit potential. Many franchisees underestimate the working capital required to survive slower months.
Dickey’s Barbecue Pit – 27+ Recent Defaults
Dickey’s has experienced a notable number of recent SBA loan defaults. Franchisees have cited rising supply costs, labor challenges, and strained franchisor-franchisee relationships as contributing factors. Food cost volatility can quickly erode margins in restaurant concepts.
Subway – 20–23% Default Rate
Subway is one of the most recognized franchise brands in the world—but it also suffers from market saturation. In many areas, locations compete directly against other Subway units, compressing revenue and profitability. This highlights the importance of territory analysis.
Quiznos – ~25% Default Rate
Quiznos experienced rapid expansion followed by a steep decline. Changes in consumer preferences, competition, and franchise model challenges led to widespread closures and defaults. It’s a classic example of how brand popularity can shift dramatically over time.
Anytime Fitness – 17+ Recent Defaults
While Anytime Fitness remains one of the largest fitness franchises globally, it has also experienced notable loan defaults. Fitness businesses often depend heavily on membership retention, and fluctuations in enrollment can impact cash flow stability.
Burgerim – High Default Volume
Burgerim experienced rapid expansion followed by widespread closures, legal disputes, and operational failures. Many franchisees were left with significant financial losses. This case illustrates the danger of franchise systems that expand too quickly without proper infrastructure.
What This Means for Franchise Buyers
The key takeaway is simple: brand recognition does not guarantee financial success.
Many buyers assume franchises are “safer” than independent businesses. While franchises offer systems and support, they also come with:
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Franchise fees
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Royalty payments
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Marketing fees
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Operational restrictions
These costs reduce net profit and can make marginal locations financially unviable.
In contrast, independent businesses with established cash flow often provide greater flexibility and stronger returns without ongoing royalty obligations.
The Importance of Financial Due Diligence
Before buying any franchise—or any business—buyers should carefully review:
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SBA loan performance history
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Unit-level financial statements
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Franchise Disclosure Document (FDD) Item 19 earnings claims
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Market saturation and territory availability
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Existing franchisee performance and satisfaction
Most importantly, buyers should evaluate the actual cash flow of the specific location they are purchasing—not just system averages.
Why Many Experienced Buyers Prefer Existing Independent Businesses
Many of the strongest acquisition opportunities involve established independent businesses with:
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Proven profitability
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Existing customer bases
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Stable operating history
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No royalty or franchise fees
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Greater operational flexibility
These businesses often present lower risk and higher returns compared to starting a new franchise unit.
Final Thoughts
Franchises can be excellent opportunities—but only when the underlying unit economics are strong. SBA default rates provide one of the clearest objective indicators of risk and should be a central part of any buyer’s analysis.
A recognizable brand may attract customers, but sustainable cash flow is what ensures long-term success.
For buyers and sellers alike, careful financial analysis—not brand perception—should drive decision making.
Michael Shea represents the Tampa Florida Transworld office. In business since 2005, he has established a reputation as a trusted business broker across Florida’s key markets- from Tampa to Orlando, Melbourne, and more. Over the past two decades, Michael and his team have closed over $1 Billion in sold business volume and presided over more than 450 transactions. His credentials include the IBBA Certified Business Intermediary®, and most recently, the prestigious Certified Exit Planning Advisor® (CEPA) credential.