Top 20 Franchise Investments to Avoid (2023)
Written by: Patrick Findaro
Last Updated by Rocio Somoza: March 6, 2023Free Download Our Exclusive E2 Visa Business Guide
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Buying and successfully running a franchise takes preparation and commitment. Educating yourself on the various franchises available in the market is pivotal for your personal and financial success. We at Vetted Biz take pride in delivering you accessible data and information to make your entrepreneurial endeavors become a reality. We have also reviewed thousands of franchise loans from the past 10 years to identify the top 20 franchise investments you should avoid given their poor track record.
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Top 20 Franchise Investments to Avoid
We analyzed the loan data on more than 5,000 franchise brands to see which ones proved to be a major failure (and success!). By measuring how many franchise loans issued under the SBA 7(a) loan program were paid in full compared to how many were charged off (i.e. defaulted), we computed their SBA loan success ratio.
We have compiled an extensive list of the top worst 20 franchise investments by their SBA loan success ratio, many of which fail more often than they succeed!
20 Franchise Investments with the Lowest SBA Loan Success Ratios
Paid-in-Full Rate
43.8%
10:35
SBA Loan Success Ratio
On average, for every 10 loans paid in full including interest, there have been 35 charged off, unable to be paid back after default.
17.3%
Paid-in-Full Rate
40.4%
Charged Off Rate
9:21
SBA Loan Success Ratio
On average, for every 9 loans paid in full, there have been 21 charged off, unable to be paid back after default.
3- Embroidme
16.2%
Paid-in-Full Rate
29.7%
Charged Off Rate
6:11
SBA Loan Success Ratio
On average, for every 6 loans paid in full, there have been 11 charged off, unable to be paid back after default.
7.7%
Paid-in-Full Rate
12.8%
Charged Off Rate
6:10
SBA Loan Success Ratio
On average, for every 6 loans paid in full, there have been 10 charged off, unable to be paid back after default.
30.8%
Paid-in-Full Rate
53.8%
Charged Off Rate
4:7
SBA Loan Success Ratio
On average, for every 4 loans paid in full, there have been 7 charged off, unable to be paid back after default.
12.8%
Paid-in-Full Rate
15.4%
Charged Off Rate
5:6
SBA Loan Success Ratio
On average, for every 5 loans paid in full, there have been 6 charged off, unable to be paid back after default.
42.9%
Paid-in-Full Rate
42.2%
Charged Off Rate
6:6
SBA Loan Success Ratio
On average, for every 6 loans paid in full, there have been 6 charged off, unable to be paid back after default.
19.2%
Paid-in-Full Rate
19.2%
Charged Off Rate
5:5
SBA Loan Success Ratio
On average, for every 5 loans paid in full, there have been 5 charged off, unable to be paid back after default.
16.8%
Paid-in-Full Rate
14.9%
Charged Off Rate
17:15
SBA Loan Success Ratio
On average, for every 17 loans paid in full, there have been 15 charged off, unable to be paid back after default.
38.9%
Paid-in-Full Rate
33.3%
Charged Off Rate
7:6
SBA Loan Success Ratio
On average, for every 7 loans paid in full, there have been 6 charged off, unable to be paid back after default.
19.4%
Paid-in-Full Rate
15.5%
Charged Off Rate
20:16
SBA Loan Success Ratio
On average, for every 20 loans paid in full, there have been 16 charged off, unable to be paid back after default.
14.7%
Paid-in-Full Rate
10.7%
Charged Off Rate
11:8
SBA Loan Success Ratio
On average, for every 11 loans paid in full, there have been 8 charged off, unable to be paid back after default.
9.1%
Paid-in-Full Rate
6.5%
Charged Off Rate
7:5
SBA Loan Success Ratio
On average, for every 7 loans paid in full, there have been 5 charged off, unable to be paid back after default.
11.7%
Paid-in-Full Rate
8.3%
Charged Off Rate
7:5
SBA Loan Success Ratio
On average, for every 7 loans paid in full, there have been 5 charged off, unable to be paid back after default.
32.2%
Paid-in-Full Rate
22%
Charged Off Rate
19:13
SBA Loan Success Ratio
On average, for every 19 loans paid in full, there have been 13 charged off, unable to be paid back after default.
16- Automotive Technologies
54.4%
Paid-in-Full Rate
36.4%
Charged Off Rate
6:4
SBA Loan Success Ratio
On average, for every 6 loans paid in full, there have been 4 charged off, unable to be paid back after default.
28.6%
Paid-in-Full Rate
19%
Charged Off Rate
6:4
SBA Loan Success Ratio
On average, for every 6 loans paid in full, there have been 4 charged off, unable to be paid back after default.
16.7%
Paid-in-Full Rate
11.1%
Charged Off Rate
6:4
SBA Loan Success Ratio
On average, for every 6 loans paid in full, there have been 4 charged off, unable to be paid back after default.
18.3%
Paid-in-Full Rate
11.5%
Charged Off Rate
19:12
SBA Loan Success Ratio
On average, for every 19 loans paid in full, there have been 12 charged off, unable to be paid back after default.
25.6%
Paid-in-Full Rate
15.4%
Charged Off Rate
10:6
SBA Loan Success Ratio
On average, for every 10 loans paid in full, there have been 6 charged off, unable to be paid back after default.
43.5%
Paid-in-Full Rate
26.1%
Charged Off Rate
10:6
SBA Loan Success Ratio
On average, for every 10 loans paid in full, there have been 6 charged off, unable to be paid back after default.
Guidelines of Analysis
Paid-in-Full Counts (PIF Counts) are the loans that are fully paid off by the small business owner, including interest, indicating financial strength
Charged off Counts (CHGOFF Counts) are the loan counts that default where loans have no confidence in being paid off by the small business owners
Loan Success Ratios are ranked from ascending order (worst to best)
Analysis time frame: from 2010-2020 Q3
Beware of High Charged Off Rate
While you should avoid many of these franchise investments, many have paid-in-full loans. They are subsequently drawn back by large enough charged off counts. The data shows that a paid-in-full rate of 20% is challenging while sustaining a charged off rate that is below the 20% or 15% threshold. It leads to greater loan success and an ability to pay the loan back in full. It is important to do your due diligence and evaluate the business decision that best suits your personal and professional endeavors.
One Important Metric
Even with a poor loan success ratio, with the right location and operator, the business can be a success. It is important to review all the factors that will lead to your franchise’s success or failure.
We at Vetted Biz bring you the bottom franchises over the last 10 years with the lowest loan success ratios to help you properly execute your business plans and mitigate any risks involved for everyone in your franchise investments.
Loan Success Ratios
Loan success ratios are a good indicator of profitability over time and help potential franchise owners get familiar with how they stand within their industry. The higher the loan success ratio, the greater the franchisees’ ability to pay back their loan plus interest to the lenders. It is crucial for franchises to demonstrate an ability to pay back their loans. As a basic tool to remember moving forward in your entrepreneurial endeavors, avoid franchises that have a loan success ratio lower than 3:1.
Analysis Provided By: Alex Bourhas, Data Analyst, Vetted Biz Intern
