The top franchises in the U.S. all have failure rates of 0 to 1 percent, according to this list from the SBA. This makes these franchises more eligible for funds from lenders, and of course, more attractive to potential franchisees. Read more on this topic in this article from Blue Maumau.
The top 14 best franchises to buy are dominated by hotel chains, but a sub shop and a quick printer are also there, according to a Small Business Administration list given to its most trusted lenders.
Taken straight from an SBA’s loan performance list covering the years from 2000 to 2007, this is the list that the agency provides to loan officers of its most trusted lenders and banks throughout the country.
Loan officers and franchise buyers realize that there are thousands of franchise opportunities to buy from, so why mess with the riskiest? These are the franchise brands that look to minimize lending risks and warm the hearts of lenders of SBA-backed loans.
It should be pointed out that ideally to be informed about where to put one’s money, a franchise buyer should look at the profit of a brand’s average store and compare the rate of return on the investment with all other brands’ returns on investments. But unfortunately, this is not the stock market. Few in the industry are willing to give an earnings claim. So what is one to do? One of the better alternatives is to use this banker’s list to check the performance of loans as a tip sheet on how to bet at the franchise races. It should also be noted that these are less than 500 franchise brands out of three to four thousand that exist in North America. But those other brands are not counted because each does not receive a significant number of SBA-backed loan disbursements.
Trade publications typically use unknowable, secret formulas to calculate their best franchises to buy list. They make considerable money from these lists from franchisors. For example, Entrepreneur recently sued its editor for allegedly taking the Franchise 500 secret formula with her to use in her new job for the creation of a Franchise 300 list at All Business.
The strength and weakness of this SBA list for loan officers is that it is performance based and transparent. Although bankers might like to look at performance, the weakness of looking at past performance is that the past is no guarantee of the future. That’s why informed consultants are helpful because they can extrapolate what they think the trend of the future will be.
This tip sheet lists each franchise brand with at least 51 Small Business Administration backed loan disbursements, a substantial number. If the failure rate to pay back the loan is tied at zero or one percent, then the brands with the higher numbers of disbursed loans take the lead. What is left is 14 major franchise brands with the best failure rates out of nearly 123 big brand concepts.
Here are 14 of the best franchise investments, ranked from fantastic to really good, from the viewpoint of a lender of SBA loans, one who wants to ensure the best chance of having a loan repaid by franchisee borrowers.
|Franchise Brand||Failure Rate||Disburse #||Disburse $|
|1. Edible Arrangements||0%||104||$13,586||0%|
|2. Firehouse Subs||0%||53||$9,205||0%|
|3. Massage Envy||0%||61||$12,768||0%|
|5. Primrose School, Daycare||0%||110||$141,027||0%|
|6. Pump It Up||0%||57||$15,371||0%|
|7. Comfort Inn||0%||158||$173,101||0%|
|8. Comfort Suites||0%||51||$55,961||0%|
|9. Holiday Inn Epxress||1%||157||$196,019||0%|
|10. Culver’s Frozen Custard||1%||150||$93,480||0%|
|11. Hampton Inns||1%||88||$111,988||0%|
|13. Little Caesar’s Pizza||1%||72||$10,947||1%|
Explanation: This is ONLY a list of franchises that have received SBA loans. It does not account for conventional, non-SBA loans. Banks aren’t about to release their conventional loan statistics anytime soon. The Small Business Administration notes that the failure rate equals the number of liquidations plus number charged off divided by total number disbursed. The disbursement dollars are for the total amount of loans disbursed x $1,000. Franchise networks that have received less than 10 disbursements (small business loans) have been taken out to leave a list of some 460+ franchise systems from 2000 to 2007.
This article has been reposted from Blue Maumau. View the article on Blue Maumau’s small business and franchise news website here.