STUDY · 175,485 SBA FRANCHISE LOANS · FY1991–FY2026 · UPDATED NOVEMBER 3, 2026
What is the franchise failure rate? Why published figures range from 1.2% to 34.9%
There is no single franchise failure rate. In the federal SBA loan record, 12.6% of franchise loans approved FY1991–FY2020 were charged off (16,498 of 131,011); counting only loans that have finished, it is 16.1%. The rate swings with the economy, from 6% for loans approved in FY2012 to 37.5% for FY2007, so published figures from 1.2% to 34.9% can all come from the same file.
Eight ways to compute it from one file: 1.2% to 34.9%
Every row uses the same SBA 7(a)/504 franchise loans. Only the years counted and the denominator change. When you see a franchise failure rate quoted, these are the two questions to ask.
| Measure | Years | Divided by | Charged off | Rate |
|---|---|---|---|---|
Recent loans, every loan counted Most of these loans are still being repaid, so few have had time to fail. Any figure that includes recent years is pulled down this way. | FY2021–FY2026 | all loans | 525 / 44,474 | 1.2% |
Post-recession decade, every loan counted Loans made after the 2008 recession, measured against every loan made, including those still being repaid. | FY2011–FY2020 | all loans | 3,819 / 57,631 | 6.6% |
2010s loans, finished loans only A common choice that leaves out the 2006–08 recession-era loans entirely. | FY2010–FY2019 | finished loans | 3,801 / 39,847 | 9.5% |
Everything, every loan counted The simplest calculation, and misleading in both directions: it includes recession loans and loans too new to have failed. | FY1991–FY2026 | all loans | 17,023 / 175,485 | 9.7% |
Every seasoned loan, every loan counted Loans approved FY2020 or earlier, so most have had time to fail or finish. | FY1991–FY2020 | all loans | 16,498 / 131,011 | 12.6% |
Every seasoned loan, finished loans only Our baseline. Dividing by finished loans removes loans still being repaid, which raises the rate. | FY1991–FY2020 | finished loans | 16,498 / 102,173 | 16.1% |
Early-2000s loans, finished loans only Loans from the pre-crash years; the later ones met the 2008 recession in their riskiest early years. | FY2000–FY2005 | finished loans | 5,130 / 25,194 | 20.4% |
Recession-era loans, finished loans only The worst years in the record: loans approved just before the 2008 crash. | FY2006–FY2008 | finished loans | 4,018 / 11,525 | 34.9% |
The economy, not the franchise model, moves the rate most
Share of each year's loans that were charged off. Loans approved in FY2006–08 met the recession in their riskiest early years. Loans after FY2020 are shown but are too young to judge: most are still being repaid.
| Approved | Loans | Finished | Charged off | Of all | Of finished | |
|---|---|---|---|---|---|---|
| FY1991 | 1,175 | 1,015 | 136 | 11.6% | 13.4% | |
| FY1992 | 1,426 | 1,249 | 112 | 7.9% | 9% | |
| FY1993 | 1,752 | 1,500 | 136 | 7.8% | 9.1% | |
| FY1994 | 2,333 | 2,010 | 215 | 9.2% | 10.7% | |
| FY1995 | 3,541 | 3,031 | 477 | 13.5% | 15.7% | |
| FY1996 | 3,711 | 3,188 | 474 | 12.8% | 14.9% | |
| FY1997 | 3,718 | 3,059 | 489 | 13.2% | 16% | |
| FY1998 | 3,023 | 2,528 | 439 | 14.5% | 17.4% | |
| FY1999 | 3,271 | 2,738 | 494 | 15.1% | 18% | |
| FY2000 | 3,449 | 2,925 | 556 | 16.1% | 19% | |
| FY2001 | 3,368 | 2,867 | 553 | 16.4% | 19.3% | |
| FY2002 | 4,531 | 3,947 | 661 | 14.6% | 16.7% | |
| FY2003 | 5,591 | 4,786 | 886 | 15.8% | 18.5% | |
| FY2004 | 6,038 | 5,133 | 1,064 | 17.6% | 20.7% | |
| FY2005 | 6,518 | 5,536 | 1,410 | 21.6% | 25.5% | |
| FY2006 | 4,569 | 3,844 | 1,351 | 29.6% | 35.1% | |
| FY2007 | 4,797 | 4,000 | 1,499 | 31.2% | 37.5% | |
| FY2008 | 4,419 | 3,681 | 1,168 | 26.4% | 31.7% | |
| FY2009 | 2,851 | 2,340 | 340 | 11.9% | 14.5% | |
| FY2010 | 3,299 | 2,631 | 219 | 6.6% | 8.3% | |
| FY2011 | 3,491 | 2,839 | 200 | 5.7% | 7% | |
| FY2012 | 3,575 | 2,867 | 173 | 4.8% | 6% | |
| FY2013 | 4,025 | 3,266 | 200 | 5% | 6.1% | |
| FY2014 | 5,343 | 4,399 | 343 | 6.4% | 7.8% | |
| FY2015 | 6,595 | 5,317 | 507 | 7.7% | 9.5% | |
| FY2016 | 6,610 | 5,089 | 537 | 8.1% | 10.6% | |
| FY2017 | 6,549 | 4,564 | 564 | 8.6% | 12.4% | |
| FY2018 | 7,579 | 4,828 | 619 | 8.2% | 12.8% | |
| FY2019 | 7,468 | 4,047 | 439 | 5.9% | 10.8% | |
| FY2020 | 6,396 | 2,949 | 237 | 3.7% | 8% | |
| FY2021 * | 8,958 | 3,212 | 214 | 2.4% | 6.7% | |
| FY2022 * | 7,560 | 1,759 | 170 | 2.2% | 9.7% | |
| FY2023 * | 7,911 | 1,194 | 123 | 1.6% | 10.3% | |
| FY2024 * | 6,321 | 420 | 17 | 0.3% | 4% | |
| FY2025 * | 7,689 | 135 | 1 | 0% | 0.7% | |
| FY2026 * | 6,035 | 8 | 0 | 0% | — |
* Too recent to judge. "Finished" = paid in full or charged off. "Of finished" shown when at least 100 loans have finished.
About 14.7% of franchise loans are charged off within 10 years
Cumulative share charged off by loan age, across 99,210 finished franchise loans approved FY2020 or earlier. Most of the risk is in years 2–6.
| Years after approval | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
|---|---|---|---|---|---|---|---|---|---|---|
| Charged off so far | 0% | 0.8% | 2.8% | 5.5% | 7.9% | 9.9% | 11.6% | 12.9% | 13.9% | 14.7% |
Senior care and health & wellness franchises default least; pet services and automotive most
Loss ratio compares each sector's charge-offs with franchise loans approved in the same years: 1.00× is average, 1.25× is a quarter more defaults than expected. The 10-year figure is the cumulative share charged off.
| Sector | Finished loans | Loss ratio vs same years | 10-year charge-off |
|---|---|---|---|
| Pet Services | 460 | 1.29× | 17.2% |
| Automotive | 5,464 | 1.28× | 19.8% |
| Home Services | 1,805 | 1.25× | 17.3% |
| Retail & Products | 6,140 | 1.24× | 19.5% |
| Recreation & Entertainment | 519 | 1.03× | 14.5% |
| Beauty & Personal Care | 3,424 | 0.97× | 13.7% |
| Fitness | 3,506 | 0.96× | 12.7% |
| Food & Dining | 32,578 | 0.92× | 13.7% |
| Business Services | 6,152 | 0.90× | 13.8% |
| Real Estate | 555 | 0.86× | 13.9% |
| Cleaning & Restoration | 2,241 | 0.84× | 12.2% |
| Hotels & Hospitality | 10,778 | 0.75× | 9.3% |
| Education & Children | 3,102 | 0.74× | 10.5% |
| Health & Wellness | 1,622 | 0.54× | 6.5% |
| Senior Care | 958 | 0.51× | 6.3% |
The other measure: outlets that leave a system each year
SBA data covers only loan-financed units. Franchisors report every outlet that was terminated, not renewed or ceased in Item 20 of the FDD. Smaller systems lose a larger share each year. An exit is not always a failure.
| System size | Systems | Annual exit rate |
|---|---|---|
| 10–49 units | 191 | 9.1% |
| 50–249 units | 278 | 8% |
| 250–999 units | 109 | 6.5% |
| 1,000+ units | 45 | 4.7% |
Which franchises closed the most outlets →·Brands whose loans defaulted most →
How this was calculated
- Source: SBA 7(a) and 504 loan-level data released under FOIA, FY1991 to date, limited to loans carrying an SBA franchise code, with 175,485 loans. Non-franchise systems such as fuel-supply contracts are excluded from the sector figures.
- "Charged off" means the SBA recorded a charge-off. "Finished" means the loan was paid in full or charged off. Loans still being repaid are in "all loans" only.
- "Seasoned" means approved FY2020 or earlier. The loss ratio weights each approval year so a sector or brand is compared with franchise loans of the same years.
- A charged-off loan is a failed loan, not necessarily a closed business, and a business can close with its loan repaid. This is the best public measure available, not a census of closures.
Download the data (CSV) ↓Free to use with credit (CC BY 4.0).
Cite as: Franchise Watch Desk, "What is the franchise failure rate?", November 3, 2026, https://franchisewatchdesk.com/research/franchise-failure-rate
Reporters: for a brand-level pull or a question about the method, get in touch.
What is the franchise failure rate?
There is no single franchise failure rate. In the federal SBA loan record, 12.6% of franchise loans approved FY1991–FY2020 were charged off (16,498 of 131,011); counting only loans that have finished, it is 16.1%. The rate swings with the economy, from 6% for loans approved in FY2012 to 37.5% for FY2007, so published figures from 1.2% to 34.9% can all come from the same file.
Why do different sources give different franchise failure rates?
Two choices drive almost all of the difference: which loan years are counted (recession-era loans failed several times as often as loans from the 2010s), and whether defaults are divided by all loans or only loans that have finished. Recent loans have not had time to fail, so including them lowers the rate.
Do franchises fail less often than independent businesses?
This data cannot answer that. It covers only SBA-backed franchise loans. Comparisons with independent businesses depend on matching loan size, industry and year, and most widely repeated comparisons do not.
How many franchise outlets close each year?
Franchisors report outlets terminated, not renewed or ceased in Item 20 of their FDD. Across 623 systems we have read, the latest-year exit rate ran from 4.7% for the largest systems to 9.1% for the smallest. An exit is not always a failure; it includes relocations and planned closures.
How should I judge one brand's default rate?
Compare it with loans made in the same years, not with a national average. A brand that lent mostly in 2006–08 will look bad against an all-years average even if it did better than its peers. Every brand page on this site shows that same-year comparison.