Best and Worst Franchises Listed by SBA Loan Defaults

By William Bruce

A franchise can be an excellent investment if — big “if” — you choose the right one.  But how do you determine which are the best and the worst franchises?

Franchises ranked best to worst

Comfort Keepers had the lowest loan default rate of all franchises for the 10 years ending 2018.

To shed some light on the issue, the Small Business Administration has provided us with their list of franchise brands ranked by the percentage of loans in default status.  Many individuals buying franchises use the SBA business acquisition loan program.  So in my office, we think the 10-year loan default rate is a pretty good indicator of whether the franchise is worth considering.

The lists below are for a 10-year period ending September 30, 2018.  Only franchise brands with a minimum of 10 loans are included.

The following top 40 franchises had the lowest SBA loan default rate during this timeframe.  Percentages have been rounded to the nearest whole number.

Franchise SBA 10-Year Loan Default Rate
Comfort Keepers 8%
Christian Brothers Automotive 8%
Home Instead Senior Care 9%
Once Upon A Child 12%
Zeppe’s 12%
Comfort Inn 12%
Buffalo Wild Wings 14%
Plato’s Closet 14%
Merlin’s Muffler 14%
H & R Block 14%
Sports Clips 14%
Culver’s Frozen Custard 15%
Molly Maid 15%
Five Guys Famous Burgers And Fries 15%
Penn Station, Inc. 16%
Cookies By Design 16%
Papa Murphy’s Take & Bake Pizza 17%
Medicap Pharmacy 17%
Great Clips 17%
Jackson Hewitt Tax Service 17%
The Cleaning Authority 17%
Primrose School 18%
Kids R Kids 18%
Wild Birds Unlimited 18%
Signs By Tomorrow 19%
Napa Auto Parts 20%
Massage Envy 20%
Pinch-a-Penny 20%
Jimmy John’s 20%
Subway Sandwich Shop 20%
Hampton Inns 21%
Liberty Tax Service 21%
Taco Bell 21%
Aussie Pet Mobile Villa Park 21%
Little Caesar’s Pizza 22%
Wingstop Restaurant 22%
Servpro 22%
Jani-King 23%
UPS Store 23%
Money Mailer 23%
best and worst franchises

At a whopping default rate of 92%, Noble Roman’s Pizza was the worst franchise on the list.

Using the same yardstick, the worst 40 franchises during the same 10-year timeframe are listed below.  There may be reasons for defaulting on a business acquisition loan other than a lack of financial performance from the franchise; however, we think a high default rate, especially over a 10-year period of time, is at least a red flag to be considered.  Our advice is to be wary of investing in one of these franchises.  If you do want to consider one of them, do your due diligence thoroughly, including talking to many of the current franchisees.

Franchise SBA 10-Year Loan Default Rate
Noble Roman Pizza 92%
Image Sun 80%
24 Seven Vending 79%
Wireless Toyz 74%
Executive Tans 72%
Play N Trade 71%
Country Clutter 71%
Camille’s Sidewalk Café 70%
Pro Golf 67%
Figaro’s Italian Pizza 67%
Buffalo Wings & Rings 67%
Planet Beach 68%
Obee’s Soup Salad Subs 63%
Pita Pit 63%
Amoco 62%
Athlete’s Foot 62%
Mr. Transmission 62%
Beef O’Brady’s 61%
Golf Etc. 61%
Bounceu 61%
Dream Dinners 61%
Atlanta Bread Company 60%
Petland 60%
Salad Works, Inc. 60%
Golf U.S.A. 59%
Nick-n-Willy’s Pizza 57%
Wing Zone 57%
Kwik-Kopy 57%
Philly Connection 57%
Premier Rental Purchase 57%
Econo Lube N Tune 56%
Dollar Discount Stores 56%
Steak Escape 56%
Carvel Ice Cream 55%
Coffee Beanery 54%
Taco Del Mar 54%
Dickey’s Barbeque 54%
Juice It Up 54%
Great Wraps 54%
Wings To Go 53%

Some franchise brands have been ineligible for SBA guaranteed loans from their inception.  This is most commonly because of legal issues created in their franchise documents.  For a list of franchises and the issues which render them ineligible for SBA loans, please see our article by clicking here.

Here are additional articles that might be of interest: What is a Franchise Really Worth (includes valuation formulas for most food service franchises), How to Analyze a Business You’re Considering BuyingHow to Make a Written Offer to Buy a Business and How to Handle the Due Diligence Investigation When Buying a Business.

For our article on a special type of franchising, referred to as master franchising, please click here.

Please don’t hesitate to call or email me if my office can be of assistance.

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William Bruce is an Accredited Business Intermediary (ABI) and Senior Valuation Analyst (SVA) assisting buyers and sellers of privately held businesses in the transfer of ownership.  His practice includes advisory services nationally on issues of business valuation and transfer.  He currently serves as president of the American Business Brokers Association.  He may be reached at (251) 990-5934 or by email at Will@WilliamBruce.org.

About William Bruce

President, American Business Brokers Association / Business Broker and Accredited Business Intermediary assisting business buyers and sellers with the transfer of ownership since 1986 / Author: How to Buy a Business.
This entry was posted in Business Valuation & Appraisal, Franchises, Valuing, Buying or Selling a Business and tagged , , , , , , , , , , , , , , , , , . Bookmark the permalink.

29 Responses to Best and Worst Franchises Listed by SBA Loan Defaults

  1. Mary Reitz says:

    Thanks for sending this information!

  2. Pingback: What Is a Master or Regional Franchise? | William Bruce on Business: A Discussion

  3. Pingback: Some Franchises Are Not Qualified for SBA Guaranteed Loans | William Bruce on Business: A Discussion

  4. nicole_pace@yahoo.com says:

    Hi William I enjoy reading your emails. I find them informative and insightful for the small business entrepreneur. I live in New York and I am looking to buy a business. Do you recommend that I work through a business broker to help me find the right match. I am worried that they will only show me businesses they represent, rather than one that would be a good match for me. I am particularly interested in buying an online business. I lok forward to hearing your opinion on this. Sincerely, Nicole Palina-Pace

  5. Reblogged this on SSV's Services: Jobs & Training and commented:
    Thinking about taking on a franchise opportunity? Be sure to look at this list first!

  6. Norwalk Furniture Idea is no longer a franchise. Any stores that kept the Norwalk Furniture Idea or Norwalk Furniture name are independently owned and operated and do not hold any franchise contract. Norwalk Furniture is now strictly a manufacturer of custom upholstered furniture. This has been in effect since the company was re-born in Oct. 2008

  7. Thanks for your great information, the contents are quiet interesting.I will be waiting for your next post.
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  8. Hello William,
    Blue MauMau has incorrect information listed about Sam & Louie’s New York Pizzeria. The failure rate is 7.7% according to the FranData and the Franchise Registry, not 40%. Below is a link to the report that has the correct information. https://www.dropbox.com/s/0uxsc4pb2imve07/Enh_SBA_SLNYP%20%281%29.pdf

  9. george meade says:

    I am thinking of opening an education franchise. I have been researching different companies. I had narrowed down my search to Kumon Math & Reading centers, EyeLevel centers and JEI Learning centers. Then I read about the child abuse, child sex scandals, child molestation cases at franchisee centers of Kumon Math & Reading. I don’t know if the others too have similar franchisee sex scandals going on.

    I do not want to associate myself with a company like Kumon that is in childrens’ education but actually victimized innocent children. What would you advise?

    • George, I’m not aware of the Kumon scandal. That sounds serious, and would give me pause also. We have a Huntington center listed for sale and from my research, I think they’re a good organization.

    • Steph Rubin says:

      George, I agree with you. I too wouldn’t want to be associated with a company like Kumon Math & Reading centers that has a history of sex crimes against children. Child sex crime scandals is the worst types of scandals. It never goes away no matter what overtures companies may make.

      I have seen entire schools dwindle and ultimately shut down because of molestation scandals. So for a franchise like Kumon Math & Reading centers that cater to young K-12 children the impact can be far greater. It just ups the risk to your investment, to a whole new level. Ultimately, let’s face it. The Kumon franchise http://www.kumonfranchise.com system is made up of many independent operators. Being a part of the Kumon franchise system creates a “guilty by association syndrome” for the rest of the Kumon franchise system even if the sex crimes against children didn’t involve all the Kumon franchisees. Thus the risk is high. The risk is even higher if you attempt to purchase an existing franchise which would undoubtedly cost you umpteen times more money. A tainted franchise system like Kumon franchise could possibly wipe you out financially.

      Having bought and sold franchises, I know it is a difficult decision to choose between franchise systems once you have set your mind on an industry, in your case “education.” My advice would be to draw a SWOT chart for yourself and keep an open mind about the industry. Then choose an industry that matches your strenghts. Then research on the franchise opportunities in that industry. Research, Research, Research!! You can never go wrong. Or take the advice of a franchise consultant like William Bruce!

      Good luck!

      • NL says:

        The problem with Kumon Math & Reading is that sex scandals have been perpetrated by the Kumon family themselves. So who can blame many of the franchisees for sex crimes?

        http://archives.starbulletin.com/2004/09/17/news/story2.html

        When my sister first opened a Kumon center in Atlanta the son of the founder of the Kumon Math & Reading company was involved in a major sex scandal with a franchisee Debra Tajiri, who owned two Kumon Math & Reading centers in Manoa and Kailua. She later claimed that Hiroshi Kumon had ruined her life after they had an affair and began asking him for money over a 21-month period beginning in March 2002. An employee of Debra Tajiri, the Kumon franchisee, later allegedly extorted $150,000 from a son of the founder of the Kumon learning method in exchange for 2,000 “compromising” photos. Debra Tajiri and one Sean Yonehiro, whom she hired to work in her centers as an assistant, were later arrested and faced a charge of sending international extortion communications which is punishable by up to 20 years in prison. Both were arrested after Yonehiro met with an FBI agent posing as Kumon’s attorney at Ala Moana Park and took from him a bag containing what he believed to be $150,000. At the time of the affair, Hiroshi Kumon was Director of Kumon Institute of Education in Japan, the parent company of Kumon North America, one of five regional headquarters worldwide responsible for operations in Canada, the United States and Mexico.

        An individual who went by the name “Max Lee” and who had been e-mailing Hiroshi Kumon while he was in Japan threatening to release compromising photos of Hiroshi Kumon if he didn’t pay for them. The complaint does not describe the photos but does say that Lee threatened to release the photos if Kumon also did not send more pornographic pictures of himself. More than five years after their affair, Debra Tajiri (the Kumon franchisee) allegedly began e-mailing Hiroshi Kumon asking for $500,000 to remodel her house, the complaint said. In those e-mails, she allegedly told Kumon that “you have taken a lifestyle from me,” and that she was considering filing a lawsuit. She also accused him of infecting her with a venereal disease and said that he should pay for her medical treatment. Kumon allegedly paid her more than $350,000. Later Debra Tajiri, the Kumon franchisee, allegedly continued asking Kumon for money, saying electricity at her home was shut off and that she could not pay contractors to finish work on her home. Debra Tajiri, the Kumon franchisee, e-mailed Hiroshi Kumon again, saying she needed $550,000 to secure a building contract. When he didn’t respond, she e-mailed him saying her life was “hell” and was over, and asking him why he had not sent money. Investigators learned that the e-mails sent by “Max Lee” came from an account belonging to Debra Tajiri and from her Nipo Street home.

        One of three vehicles spotted at Kumon franchisee Debra Tajiri’s residence was a white Ford pickup truck that was later seen at the Hawaii State Library — the first meeting Lee allegedly requested for Kumon’s representative to bring the money. A man was seen walking around the library on that day before leaving in the white truck registered to Yonehiro, who lists a Nipo Street address as his residence.

    • Marty Fish says:

      George, there are no Kumon sex scandals or anything of the sort. That is absolutely not true. It sounds like horrible rumors that someone is spreading. Check our track record and our Franchise Disclosure Document. We have a clean history and track record. We are one of the world’s largest and oldest credible franchisors in the world, with over 4 million students. I know, because I have been with Kumon for 15 years and I have 4 children who have been in Kumon. If I ever had a clue that those things were happening, I would have left long ago.

      • Marty, a quick Google proves there was a sex scandal at Kumon. Please see http://abc7.com/archive/8347625/ and http://www.sgvtribune.com/technology/20111114/victim-13-pleads-in-bellflower-court-to-give-convicted-molester-what-he-deserves.

        I’m not saying it is or was systemic at Kumon, but it did occur at a California location. Get your facts straight.

      • Kumon Math and Reading in Saint Louis, Missouri – Former Kumon Franchise owner would never recommend the franchise, but learned from the program

        As one who also lost my shirt (and savings) from the worst franchise “opportunity” on the face of the earth, I would recommend anyone wanting to invest that they run as fast as possible in the opposite direction. I will not go into detail, but I was shafted coming in and when I closed.

        That being said, I will tell you that many Kumon centers are run by people like me. I made sure students understood, made it my first rule that NOBODY cried, used whatever tools I could to get the point across (took some flack for that from Kumon central), and had a growing respect for the way the worksheets were laid out. Unneeded repetition is a direct result of the owner, not the program. I had many kids who started behind in their school grade. Some took longer than others to catch up/surpass, but the many, many who progressed all had one thing in common – parents who were involved. If the parents did not grade and make sure the work was corrected, we met and I showed them how it made a difference. It was a cheerful, clean and bright center where the kids were not miserable. My best review was that lots of them cried when I announced I was closing.

        I quit when the administrators started telling us not to talk/ explain to the kids?! As a former college professor and engineer, I asked how they would help in math level K when the example is inadequate. No satisfactory answer! I showed them that reading the poetry and Shakespeare aloud with inflection helped the younger kids understand the meaning. Not allowed! They wanted me to completely change my center to match some new arbitrary and depressing template. And increase my staff when I hadn’t paid myself in 2 years.

        So, please evaluate the Kumon centers individually. If they tell you they guarantee results with no effort on your part, run. If they insist on a contract, run. I still have a few friends who have theirs open and are killing themselves trying to do right by the kids, with very little monetary return. They do exist.

    • charlie leon says:

      It is well known here among franchisees here in Australia that Kumon corporation in Japan is bankrupt and overseas operations have been struggling for years. Not sure what the future holds but it seems that this franchise chain doesn’t hold much hope for the future.

      • Willy P says:

        If Kumon corporation (franchisor) is bankrupt, it’s smart to consult a franchise attorney about your options and rights. But while a bankruptcy filing may cause sleepless nights, you might be better off selling your Kumon business in the long run.

  10. tsuz says:

    I just watched a video about children being molested at Kumon tutoring centers. It is scary. Now no place is safe for children.

    http://abclocal.go.com/kabc/video?id=8348289&pid=8347625

    I feel so sad for the kids. What the kids had been put through was inexcusable, which I realize happens a lot. Such incidents are awfully traumatic for children and they will have to live with a lifetime of guilt and shame.

    My thoughts, well-wishes etc., go out to all children molested by their Kumon tutors 🙁

    Children should be encouraged to talk to their parents and tell them of such crimes as soon as they happen.

    • Michael Nolan says:

      BlueMauMau and other websites have incorrect failure rates listed for many, many franchises. Sam & Louie’s is listed at 40% failure rate, the correct rate is 7.69%. Here is a link to some information about the incorrect reporting and the corrected information about Sam & Louie’s specifically.
      https://www.dropbox.com/s/4uxdlqn6umdmnqp/Enhanced%20SBA%20Loan%20Loss%20Analysis%20for%20Sam%20%26%20Louie%27s.pdf

      Does anyone know of a way to get websites like BlueMauMau and others to post the correct information. I have contacted them directly and they just don’t care. They don’t realize (or again don’t care) the damage that this incorrect information can cause a franchise system in terms of gaining new franchisees and securing loans for those that are not scared away by misinformation. Unfortunately most people believe that all information posted on line is factual.

      • Michael, it appears to me that your complaint is with the SBA, not BlueMauMau, as they are just reporting information that the SBA has released. I believe if you got the SBA to correct any alleged errors, BlueMauMau and other websites would report the corrections.

      • Michael Nolan says:

        I’ve tried that approach, I will try it again. BlueMauMau did not care to correct or even note it when I supplied them with the facts.

    • Bruce L says:

      Why do people have to “Molest” children? Kumon Math & Reading is one of the worse tutoring companies out there. But, they still charge enough to keep their franchisees well fed. Not sure then why Kumon franchisees molest children? These cases should be a wake up call for all parents who fail to spend some time with their children and think that such tutoring centers places to send their children.

  11. Pingback: The Best and Worst Franchises to Buy | William Bruce on Business: A Discussion

  12. Valjean Guerra says:

    Can you help me acquire a Dunkin Donuts franchise. I would like to hear your evaluation of this company. Is the franchiser fair and supportive as they say on there website.

    • Valjean, thanks for dropping in. I haven’t had any significant dealings with Dunkin Donuts franchisees or the franchisor. Generally, my impression is they are an OK organization. Ask them if they publish an earnings claim which is the Statement 19 in their Federal Disclosure Document (FDD). It’s optional for a franchisor to include a Statement 19 in their FDD, but if they do, it will tell you a lot about the average earnings of their franchisees. The FDD gives you a lot of other information also, including any litigation in their history.

  13. John says:

    Hi. Massage Envy claims a 99.1% success rate. How can they have a default rate over 4%? Thanks

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