Worst Franchises by SBA Loan Defaults
November 2, 2009
According to a review of SBA data by Investopedia, the recession has hit franchising hard. After reviewing the SBA report, Investopedia listed their 15 worst franchises list in terms of SBA loan defaults. According to a post by Katie Adams of Investopedia:
The recession has hit franchise owners particularly hard, with the Small Business Administration (SBA) reporting record loan default rates for 2008-2009. According to the SBA, individuals who took on SBA loans to finance a franchise had a 43% higher failure rate than in 2007. In total, those franchise losses cost the SBA $93.3 million last year – nearly 170% higher than the year before. Since 2004, franchise loan defaults have increased by nearly 10% (from 3.1% to 13.4%), highlighting that franchise owners have had an increasingly difficult time making a successful go of their new ventures. Sorting through the 2009 Franchise Coleman Report we were able to determine the franchises that had the highest SBA loan failure rates in 2008.
According to Investopedia, the 15 franchises with the highest SBA loan failure rates in 2008 were:
1. Noble Roman’s Pizza
2. PJ’s Coffee and Tea Café
3. Super Suppers
4. Figaro’s Italian Pizza
5. New York NY Fresh Deli
6. Amazon Café
7. Simple Simon’s Pizza
8. Snip-Its
9. U Build It
10. Bellacino’s Pizza
11. Blockbuster Video
12. Pizza Factory
13. Pro Golf
14. Conoco Service Station
15. Keva Juice
However, the Infopedia listing has been challenged. After reading the original report, here is our listing of the Worst 15 Franchises in terms of SBA loan defaults (2008):
1. TILDEN FOR BRAKES CAR CARE CENTER
2. EXECUTIVE TANS
3. PRO GOLF
4. LA PALETERA
5. BEAR ROCK CAFE
6. OBEE’S SOUP SALAD SUBS
7. SHAPEXPRESS
8. FRULLATI CAFE
9. MR. GOODCENTS SUB’ AND PASTA
10. WICKS ‘N’ STICKS
11. HAIR COLOR EXPRESS
12. WINGS-N-THINGS
13. NOBLE ROMAN PIZZA
14. SUPER SUPPERS
15. AMAZON CAFE
WHAT DO YOU THINK? ARE YOU FAMILIAR WITH ANY OF THESE FRANCHISE OPPORTUNITIES? SHARE YOUR THOUGHTS BELOW.
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Uh oh. The original blogger got this one wrong.
At Blue MauMau, this list is posted annually. In fact, we were the first to publish it. For the record, the worst brand by failure of franchisees to pay back their SBA-backed loans up to Sept 30, 2008 is Tilden for Brakes Car Center. The second is Executive Tans. These other concepts are considerably farther down the list.
The 2009 list is not yet available. It will be available in 2010.
Mr. Blue MauMau
http://www.bluemaumau.org
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Remember! The SBA Default List is just the “tip of the iceberg” concerning the FAILURE of “founding” franchises in our economy. FranData’s risk snapshots are not accurate in terms of providing information for due diligence by prospective buyers of franchises.
The thousands of franchisee failures who continue to pay on startup debt to avoid surrender of their collateral and to avoid bankruptcy don’t show up on any official records — or the records of the banks who made thousands and thousands of “startup loans” to franchisees from their home equity accounts. As long as the failed franchisees continue to pay on the startup debt, these failures are invisible to the new buyers and to the regulators.
It is this somewhat invisible “churning” of franchisees that has made franchising so durable for franchisors and so painful for franchisees. Let the Buyer Beware of incomplete and misleading SBA failure rates!