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.
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.
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 Businesses and franchises that are categorized based on shared primary business services and activities. Vetted Biz’s 13 major business industries are• Automotive• Business Services• Cleaning and Maintenance• Children Programs• Education Programs• Fitness Centers• Food & Beverage• Health & Beauty• Healthcare Services• Home Services• Real Estate•… 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||17,203|
|Travel and Hospitality||5,556|
|Retail Products and Services||5,377|
|Health and Beauty||3,983|
|Cleaning and Mainternance||1,633|
In the pie chart depicting disbursed loans above, from 2010 to 2020, SBA loans for all franchises within the 7(a) loan program under the Food and Beverage industry had the highest percentage of loans approved with a rate of 35.62%. The Travel and Hospitality industry came in second with 11.7% of the total franchise loans approved and the Retail Products and Services industry in third, with 10.89% of total franchise loans approved.
SBA Loan Statuses
Further analysis was conducted based on the loan status by Businesses and franchises that are categorized based on shared primary business services and activities. Vetted Biz’s 13 major business industries are• Automotive• Business Services• Cleaning and Maintenance• Children Programs• Education Programs• Fitness Centers• Food & Beverage• Health & Beauty• Healthcare Services• Home Services• Real Estate•…. 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.
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 Also can be referred to as the SBA Loan Default Rate, the charged off rate is percentage of businesses in set field (e.g. industry) that defaulted their loan, are unable to pay their loan in full, and/or there is no confidence that they will be…. 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.
Paid in Full : Charged Off Ratios
From 2010 to 2020, SBA loans issued to franchises within the Travel and Hospitality industry had the highest Paid in Full to Charged Off ratio, where for every 59 small businesses that paid their loans off in full, one of them charged off on their loans. Similarly, the Children Programs industry, which provides kids with extracurricular activities involving physical activity and performing arts, also had a relatively high ratio where for approximately every 28 franchises that paid their loans off in full, one charged off on their loans.
Beyond the Travel and Hospitality and Children Programs industries, the average Franchise Success ratio of all industries fall around 10 franchises that paid their loans off in full to one that then charged off on their loans. Additionally, the Cleaning and Maintenance and Automotive 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 franchisees 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.
Of these small franchises, 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.
|Industry||Paid in full|
|Cleaning and Maintenance||340|
|Food and Beverage||5,657|
|Health and Beauty||1,222|
|Retail Products and Services||1,398|
|Travel and Hospitality||1,849|