COHORT STUDIES · 623 SYSTEMS · 237,590 FRANCHISED UNITS · DATA AS OF 2026-10-29
What the FDDs of 623 franchise systems show
Five questions franchise buyers ask, answered from public filings: FDD Item 20 outlet tables filed with state regulators, joined where noted with the SBA's 7(a) and 504 loan files. Definitions match our industry benchmarks. Each panel states its sample size; systems below a study's sample floor are left out of it.
Do FDD exit rates line up with SBA loan losses? Somewhat (r = 0.30).
For every system with at least 30 resolved SBA loans approved in FY2020 or earlier, we compared the exit rate in its latest FDD with its loan loss ratio: charge-offs divided by the charge-offs expected if each loan had defaulted at the rate of all SBA franchise loans approved the same year. A ratio of 1.00 is average for the loan's vintage. The two move together, weakly: Pearson r = 0.30 (rank correlation 0.38). Systems in the highest-exit third had 1.11× the expected charge-offs, against 0.67× for the lowest-exit third.
What this does not show: an r of 0.30 means exit rate accounts for roughly 9% of the brand-to-brand variation in loan losses, so it says little about any single brand. The comparison is observational, and the exit rate comes from a recent FDD while the loans were made years earlier, so neither number causes the other.
| FDD exit-rate third | Systems | Median exit rate | Seasoned resolved loans | Median loss ratio | Pooled loss ratio | Ratio-implied charge-off rate |
|---|---|---|---|---|---|---|
| Lowest-exit third | 50 | 1.3% | 10,853 | 0.55× | 0.67× | 10.8% |
| Middle third | 51 | 4.3% | 11,594 | 0.96× | 0.73× | 11.8% |
| Highest-exit third | 51 | 10.0% | 6,534 | 1.23× | 1.11× | 17.9% |
Pooled loss ratio = the third's total charge-offs ÷ its total expected charge-offs. Ratio-implied rate = pooled ratio × 16.1%, the charge-off rate of all seasoned resolved franchise loans. The 5 highest-exit-rate systems in the join with at least 50 seasoned resolved loans: I LOVE KICKBOXING (exit 32.9%; 2.64× expected, 30 of 99 charged off) · 9ROUND (exit 29.6%; 2.46× expected, 24 of 89 charged off) · LINE-X (exit 27.2%; 0.65× expected, 19 of 141 charged off) · Cartridge World (exit 20.0%; 0.91× expected, 39 of 171 charged off) · GOLD'S GYM (exit 19.5%; 0.84× expected, 28 of 190 charged off). 3 of these 5 still had fewer charge-offs than expected, which is the brand-level noise the correlation leaves. Only systems whose franchisees borrow through the SBA clear the loan floor, so the join leans toward loan-financed concepts.
Systems with no Item 19 earnings claim show higher aggregate exit rates.
Item 19 of the FDD is where a franchisor may disclose what units earn. It is optional. Systems that publish no financial performance representation run an aggregate exit rate of 10.4%, versus 4.4% for systems disclosing a full average-unit-volume spread (medians: 6.3% vs 4.5%). This is a correlation across systems, not a finding about any individual brand, and it does not say why: systems that skip Item 19 may differ in age, size, or sector.
| Item 19 disclosure | Systems | Aggregate exit rate | Median exit rate | Opening rate | Median disclosed AUV |
|---|---|---|---|---|---|
| No Item 19 FPR | 139 | 10.4% | 6.3% | 9.2% | — |
| Item 19, no usable AUV spread | 135 | 4.9% | 4.7% | 9.5% | $833K |
| Item 19 with full AUV spread | 233 | 4.4% | 4.5% | 9.6% | $724K |
Disclosure completeness is only judged for filings extracted under our current schema; 116 earlier extractions are excluded rather than miscounted as non-disclosers. See the no-Item-19 list for the systems themselves.
Higher-royalty systems did not grow slower.
Royalty rate and net unit growth are weakly related (r = 0.13). In the 7% and up band, median growth was 5.5% and the opening rate was the highest of the three bands, while the aggregate exit rate was 9.1%, 2.0 times the highest of the cheaper bands. Higher-royalty systems in this sample both add and lose units faster; the bands do not show whether the royalty causes either.
| Royalty band | Systems | Median royalty | Median unit growth | Aggregate exit rate | Opening rate |
|---|---|---|---|---|---|
| Under 5% | 56 | 4.0% | 1.1% | 4.6% | 6.4% |
| 5–6.9% | 289 | 6.0% | 3.6% | 4.0% | 7.8% |
| 7% and up | 195 | 8.0% | 5.5% | 9.1% | 8.7% |
Bigger systems lose a smaller share of franchisees each year.
Exit rates fall with every step up in system size — from 9.1% for systems with 10–49 units to 6.2% for systems with 1,000+ units. The smallest systems also open the most units relative to their base (41.7%), so buying into one is a bet on which of those two rates wins.
| System size (franchised units) | Systems | Units at year start | Exits | Exit rate | Opening rate |
|---|---|---|---|---|---|
| 10–49 units | 191 | 5,258 | 477 | 9.1% | 41.7% |
| 50–249 units | 278 | 34,390 | 2,748 | 8.0% | 13.5% |
| 250–999 units | 109 | 50,714 | 3,290 | 6.5% | 9.5% |
| 1,000+ units | 45 | 143,761 | 8,934 | 6.2% | 6.0% |
When franchise loans fail: mostly in years 3–7.
Among resolved SBA 7(a)/504 franchise loans approved in FY2020 or earlier, 14.7% ended in charge-off within 10 years of approval. 0.0% had failed by the end of year one and 0.8% by year two; 73% of the 10-year total landed between the end of year two and the end of year seven.
The level of each curve depends on which years a group lent in (loans made in 2006–08 failed far more often than loans made in 2010–14), so sectors are compared by loss ratio: actual charge-offs ÷ the charge-offs expected at same-approval-year rates for all franchise loans. pets loans had 1.29× the expected charge-offs; senior care loans had 0.51×.
| Cumulative charge-off by… | Year 2 | Year 3 | Year 5 | Year 7 | Year 10 | Resolved loans | Loss ratio |
|---|---|---|---|---|---|---|---|
| All franchise loans | 0.8% | 2.8% | 7.9% | 11.6% | 14.7% | 99,210 | 1.01× |
| pets | 0.9% | 3.0% | 8.9% | 13.7% | 17.2% | 460 | 1.29× |
| automotive | 0.9% | 4.1% | 10.9% | 16.1% | 19.9% | 5,398 | 1.28× |
| home services | 2.5% | 5.5% | 12.1% | 15.6% | 17.4% | 1,838 | 1.26× |
| retail | 1.0% | 3.6% | 10.7% | 15.4% | 19.5% | 6,101 | 1.24× |
| recreation | 0.8% | 2.3% | 5.8% | 9.8% | 14.5% | 519 | 1.03× |
| fitness | 0.4% | 2.1% | 6.7% | 10.0% | 12.7% | 3,506 | 0.96× |
| beauty | 0.6% | 2.0% | 6.7% | 10.1% | 13.4% | 3,514 | 0.96× |
| food dining | 0.6% | 2.3% | 7.0% | 10.6% | 13.7% | 32,578 | 0.92× |
| real estate | 0.9% | 2.5% | 7.6% | 10.8% | 13.9% | 555 | 0.86× |
| business services | 1.0% | 3.3% | 8.2% | 11.3% | 13.3% | 5,919 | 0.86× |
| cleaning | 1.0% | 2.9% | 7.5% | 10.0% | 12.0% | 2,208 | 0.83× |
| hospitality | 0.0% | 0.6% | 3.0% | 6.0% | 9.3% | 10,778 | 0.75× |
| education | 0.7% | 1.9% | 5.5% | 8.5% | 10.5% | 3,102 | 0.74× |
| health | 0.4% | 0.7% | 2.6% | 4.3% | 6.8% | 1,532 | 0.55× |
| senior care | 0.5% | 1.9% | 5.2% | 5.9% | 6.3% | 958 | 0.51× |
Highest loss ratios among the 173 brands with at least 100 seasoned resolved loans: Golf U.S.a. (Retail Golf Equip.) (2.63×; 49 of 106) · All Tune and Lube (2.49×; 121 of 286) · Dickey'S Barbeque (2.43×; 92 of 287) · Golf Etc. (2.37×; 72 of 132). Lowest: Club Pilates (0.00×; 0 of 157) · Nothing Bundt Cakes (0.00×; 0 of 129) · Planet Fitness (0.00×; 0 of 136) · Christian Brothers Automotive (0.00×; 0 of 210). Cumulative incidence among resolved loans (charged off ÷ charged off + paid in full), not a full survival model; open loans are excluded because their outcome is not known. Loans to 26 SBA-coded systems that are not franchises a buyer can purchase (fuel supply contracts, insurance agencies, dealerships, direct sellers) are excluded.
Method notes
- ▸ Exit rate = terminations + non-renewals + “ceased operations — other” ÷ franchised units at year start, from each system's latest FDD Item 20 filing, the same definition as the sector benchmarks. Systems under 10 franchised units are excluded from per-brand rates (one exit swings a tiny denominator).
- ▸ Loss ratio = a brand's charge-offs among resolved (charged off or paid in full) SBA loans approved in FY2020 or earlier ÷ the charge-offs expected if each loan had defaulted at the rate of all SBA franchise loans approved the same fiscal year. Loans approved after FY2020 are left out because most failures surface five or more years after approval. A brand needs at least 30 such loans to be rated, the same floor used across the site. The raw all-time charge-off rate is not used, because it mostly reflects when a brand's loans were made.
- ▸ Correlations are Pearson r over per-brand values, reported only when n ≥ 8, and printed to two decimals. No survey data is used and nothing is imputed.
- ▸ Corpus: 850 brands with an extracted FDD (1,043 filings), of which 623 had at least 10 franchised units at the start of their latest Item 20 year (the per-brand cohort for Studies B–D). Filings come almost entirely from Minnesota's CARDS registry, so brands that never register there are missing. Full derivations on the methodology page.
Few franchisors state that the fee is final.
Item 5 must disclose the conditions of a non-uniform initial fee, and franchisors who varied theirs last year print the range they collected. Across 256 systems, only 3 state in writing that the fee is uniform, while 37 disclose collecting less than the top of their fee range.
Read the fee study →What moved this week, dated and on the record.
New public-record events we collect (bankruptcy and closure records, federal court dockets) and an SBA loan watchlist, reported weekly while event collection is running and archived as sent with any later corrections noted.
Browse the archive →Weekly: bankruptcies, closures and court filings matched to a brand's own entity, plus a watchlist from filed records and SBA loan outcomes. For alerts about changes to specific brands, save them to your shortlist.
Free. Unsubscribe anytime. I never sell your email.