SBA Loan Statuses

Further analysis was conducted based on the loan status by business industry. The loan status categories are listed below. Note that the most important loan statuses to understand for this analysis is Paid In Full and Charged Off.

• • Paid in Full: loan has been repaid in full, including all principal and interest payments
  • Charged Off: loan no longer has reasonable expectation of further payment after default
    • Default: loan payment has been overdue for 90 days
  • Commit: loan not disbursed, also labelled as “Not Funded”
  • Cancelled: loan is cancelled by borrower, or occasionally by SBA, if description does not follow terms of use
  • Exempt: loan is exempt from disclosure under FOIA Exemption 4, which protects “trade secrets and commercial or financial information obtained from a person privileged or confidential”; also includes outstanding loans

The best loan status reflecting financial health of the business is Paid in Full, as the business has already paid off the loans and all interest. In contrast, the worst loan status is Charged Off, as the loan has been defaulted and further collection of debt is doubtful. The SBA recognizes this as a loss and writes the account off from its active accounts receivable.

Vetted Biz reclassified the 1000+ NAICS codes into 14 industries for the small businesses studied. Within each industry, we studied the rate of the two most important aforementioned loan statuses. The adjusted results of Paid in Full and Charge Off rates for each industry are listed on the next pages, with a table tabulating count of franchises by industry under each loan status. Adjusted results exclude loans that were Committed or Cancelled, otherwise known as disbursed loans previously mentioned.

SBA Loan Status per Industry

From 2010 to 2020, SBA loans issued to franchises within the Travel and Hospitality industry had the highest Paid in Full rate and one of the lowest Charged Off rates. The Travel and Hospitality industry includes a broad range of companies: tour operators, travel consolidators, tourist boards, airlines, cruise lines, railroads, private transportation providers, car rental services, hotels, resorts, lodging, restaurants and other related services.

Some industries at the same time, have a wider gap between businesses that are doing well and those that are not. In other words, more risk can equal more reward. For example, loans issued to franchises within the Food and Beverage industry has one of the highest Paid in Full rates, but it also has a high Charged Off rate. On the other hand, loans issued to franchises within industries that have lower Paid in Full rates such as the Fitness Centers and Education Programs industries, also have lower Charged Off rates.

When exploring optimal businesses to invest in, prospective small business owners must keep in mind the industry as a whole. Reviewing the SBA 7(a) loans is one of many factors to consider when analyzing the success of franchise industries.