The U.S. Small Business Administration, commonly referred to as the SBA, is the only cabinet-level federal agency fully dedicated to supporting small businesses and entrepreneurs from counseling to capital. Many small businesses turn to the SBA for loans, as SBA loans typically have lower rates and longer durations compared to other traditional bank loans.
The SBA’s most popular loan program is the 7(a) loan for small businesses. The 7(a) loan provides financial assistance for entrepreneurs starting a new business or acquiring, operating, or expanding an existing business. The loans must be approved by the SBA.
Vetted Biz has reviewed and analyzed the SBA 7(a) loan approvals from the fiscal years 2010-2020. The records were obtained through SBA’s official website.
In total, 588,053 small businesses in the U.S. were approved for the SBA 7(a) loan from 2010 to 2020. These businesses are categorized by the North American Industry Classification System, NAICS, that consists of 1,913 classifications. The SBA loan failure rate by NAICS industry code is not statistically significant given the low number of loan issuances in many of the classifications and misclassifications.
Of the 588,053 businesses approved for a 7(a) loan, over 53,377 of these businesses were franchise concepts representing roughly 9.08% of approved loans, while the remaining 534,676 loans were issued to non-franchised businesses, or 90.92% of approved loans.
Many of the businesses these loans were previously issued to had different NAICS classifications for each individual loan. Therefore, the Vetted Biz analytics team recategorized these businesses by 14 industries that more accurately reflect the business nature of the concept. Listed below is the count of loans approved for each industry. Note that the Other Business industry only consists of one business; thus, this industry will be excluded from future analysis since there were no loans classified under this industry.
|Food and Beverage||84,797|
|Retail Products and Services||55,654|
|Health and Beauty||22,693|
|Cleaning and Maintenance||21,956|
|Travel and Hospitality||15,797|
PERCENTAGE OF TOTAL DISBURSED SBA (7A) LOANS BY INDUSTRY FROM 2010-2020 (EXCLUDING CANCELLED AND COMMITTED LOANS)
SBA Loan Failure Rate by Business Industry
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.
SBA Loan Statuses
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.
SBA Loan Status per Industry
Vetted Biz reclassified the 500+ NAICS industries into 14 industries for the franchises studied. Within each industry, we studied the rate of the two most important loan statuses, Paid in Full and Charged Off Rate. Below you can find the adjusted results of both for each industry with a further breakdown of how many businesses in those industries had that loan status. Adjusted results exclude loans that were “Committed” or “Cancelled” due to the fact that these loans ended before they were ever disbursed by the lender.
From 2010 to 2020, SBA loans within the Healthcare Services industry had the highest Paid in Full rate and one of the lowest Charged Off rates. The Healthcare Services industry is largely dominated by urgent care centers, medical staffing companies, and senior care centers.
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, the Retail Products and Services industry has one of the highest Paid in Full rates, but it also has a high Charged Off rate. On the other hand, industries that have lower Paid in Full rates such as the Children Programs and Travel and Hospitality 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 small business industries.
|Industry||Paid in full|
|Food and Beverage||29,760|
|Retail Products and Services||20,871|
|Health and Beauty||8,142|
|Cleaning and Maintenance||7,968|
|Travel and Hospitality||5,473|
|Food and Beverage||3,410|
|Retail Products and Services||2,454|
|Health and Beauty||862|
|Cleaning and Maintenance||721|
|Travel and Hospitality||451|
Loan Success Rate
From 2010 to 2020, SBA loans within the Real Estate industry had the highest Paid in Full to Charged Off ratio, where for every 21 small businesses that paid their loans off in full, one of them charged off on their loans. Similarly, the Travel and Hospitality industry, which encompasses tourism agencies and lodging facilities, also had a relatively high ratio where for approximately every 17 businesses that paid their loans off in full, one charged off on their loans.
Beyond the Real Estate and Utility industries, the average Paid in Full to Charged Off Ratio of all industries fall around 11 businesses that paid in full, to one that then charged off on their loans. Additionally, the Retail Products and Services and Food and Beverage industries had the lowest ratio, where for roughly every 8 businesses that paid their loans off in full, 1 business eventually charged off on their loans.
When prospective business owners are studying the best industries to invest in, beyond looking at separate numbers and loan statuses in general, it is important to understand how the industry functions as a whole. With that in mind, the Paid in Full to Charged Off ratio allows for an extensive insight into how industries and their SBA loans in general are doing that are helpful in guiding the franchisee on the best franchises to consider investing in.
Investing in Franchised vs. Non-Franchised Concepts
Another factor to consider when investing in a small business that is SBA eligible is whether the business is a franchise concept. Vetted Biz has carried out another study that analyzes the SBA 7(a) program among franchised concepts and non-franchised concepts.
Further details on how franchised and non-franchised concepts performed within each industry can be found published on Vetted Biz where an in-depth analysis on either business structure and their industry performance has been conducted.
Of these small businesses, around 45% had exempt loan status. Therefore, most of these businesses were not able to disclose whether they had Paid in Full, Cancelled, or Charged Off. Although additional information on what a loan’s exempt status encompasses can be found on a separate report, this nevertheless limits an accurate analysis of SBA business success overall.
In the FOIA 7(a) Report, most businesses from the same concept were labelled with many different NAICS classifications. For example, Subway, the franchise with the most units in the U.S., had four different NAICS classifications. Vetted Biz cleaned the data for this report to ensure the same business concept is categorized in the same industry.
Furthermore, some industries like Home Services and Education Programs only had a few hundred businesses with loan approvals compared to most industries that had a few thousand. Therefore, one or two businesses in smaller industries that had a Charged Off loan status would have a greater impact on the Charged Off Rate.
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