SBA Franchise Directory Broken Down (2023)

SBA Franchise Directory

IA lot of ads recently by franchisors say that they’re SBA-eligible. Essentially, the Small Business Administration says that it’s eligible for SBA loans without a set franchise, or even worse, SBA-approved. The SBA approved this franchise as a good business opportunity. In today’s video, we’re going to go through the importance of understanding what franchises are SBA-eligible. And how the SBA really determines the eligibility of a franchise.

Don’t be seduced by a franchise ad that says the SBA approved this business opportunity. As if it was a direct endorsement from the Small Business Administration to that set franchise.

Essentially, all the SBA’s looking at is that there is a unique division between the franchisor and the franchisee. That it’s not a co-employment agreement or arrangement. And that these two entities aren’t operating together, essentially.

Small Business Administration (SBA) Loans

SBA loans are a popular choice for future franchisees. The SBA is a government institution that facilitates long-term loans at competitive rates. How it works is that the SBA doesn’t actually provide loans but instead guarantees a loan from a bank or credit union. This is an excellent option for someone with a low credit score who can’t get approved for a small business loan from a bank on their own.

There are two types of SBA loans: the SBA 7A and the SBA CDA/504 loan:

SBA 7A loans offer individuals up to $5 million with repayment terms ranging from 7 to 25 years. These loans can be used for multiple purposes depending on the terms and conditions of your loan including real estate to franchise fees. Like with most loans, the interest rates for these loans will depend on the amount and length of the loan.

The SBA CDA/504 loan is a collaborative effort, typically broken down into

• A nonprofit Certified Development Company (CDA) provides up to 40% of the amount needed by the franchisee.
• A bank or credit union provides up to 50% of the amount.
• The franchisee contributes the remainder of around 10%.

With an SBA CDA/504 loan, there are limitations to how the funding can be used. For example, you can’t use the loan to pay franchise fees.

While an SBA loan is easier to acquire than business loans from traditional lenders, it’s still a time-consuming process and requires the lender to have a decent credit score.

Most of the time, the franchise is going to be eligible for the 7A loan. You could use it to build out the location, and working capital, pay employees, and buy furniture and fixtures. Even the 504, which is generally used for real estate purchases, whether you’re developing your place of work with a franchise location from the ground up or if you are going to be buying an existing location, like a condo office.

Our work at Vetted Biz…

At Vetted Biz, we make it a lot easier for you. Every couple of weeks, the SBA is updating its directory. It’s a 20, 30-page PDF document that’s not easily sortable. At Vetted Biz, we’ve created a unique link. You can just go through it and see all the franchises that are SBA-eligible. And again, 90, 95% of the franchise brands are going to meet the criteria for an SBA loan. We have other videos that we’ve done with financial experts and financing specialists. If you’ve any doubt about the SBA loan process, I encourage you to take a look at some of those videos.

Franchises with the Highest Percentage of Defaults

Have you ever wondered what franchises default the most? Or which franchises might not be able to make enough to cover their loans? Below, we are going to look at the worst franchises. 

This table lists the worst franchises by the number of franchises defaulting. Scroll down to see the franchises with the highest percentage of defaults.