Franchise Failure Rate: What SBA Loan Data, FDD Item 20 and BLS Survival Data Actually Show

The year you borrowed mattered more than almost anything else. Franchise loans approved in FY2007 were charged off at 37.4%, while FY2013 loans came in at 6.7%, because the earlier group opened right into a recession.

In both periods the franchise and non-franchise bars sit within a point of each other. Pooled across FY2000-FY2014 the rates are 19.40% and 19.41%, so the brand name did not buy lower risk on average.

The steepest drop comes in the first year, when the share still open falls to 79.6%. After that the decline slows, but it never stops: by March 2025 only 34.7% of the 2015 class remained.

Five-year survival has barely moved in a decade, staying between 50.1% and 51.9% for every opening year shown. Any franchise pitch should be measured against that flat baseline.

This is an industry-sponsored success measure that treats some closed units as successes. It slipped from 95.9% in 2021 to about 94.2% expected for 2025, but it is not a failure rate and should not be compared with SBA or BLS figures.

Same lender program, same years, very different results. Matco Tools loans were charged off at 35.5% and Sports Clips at 4.5%, which is why a single industry-wide failure rate tells you little about the brand in front of you.

What FDD Item 20 counts: the closure and turnover categories defined by the FTC Franchise Rule

Source: Electronic Code of Federal Regulations (National Archives and GPO), 16 CFR 436.5 Disclosure items, paragraph (t) Item 20: Outlets and Franchisee Information (FTC Franchise Rule). Download as image

SBA 7(a) loans charged off by approval year, franchise vs non-franchise borrowers (FY2000-FY2014, data as of June 30, 2026)

Source: U.S. Small Business Administration (data.sba.gov), 7(a) & 504 FOIA loan-level data: 7(a) files FY1991-FY1999, FY2000-FY2009, FY2010-FY2019 and FY2020-Present. Download as image

SBA 7(a) loan outcomes for franchise brands with 400 or more disbursed loans, FY2000-FY2014 approvals (data as of June 30, 2026)

Source: U.S. Small Business Administration (data.sba.gov), 7(a) & 504 FOIA loan-level data: 7(a) files FY1991-FY1999, FY2000-FY2009, FY2010-FY2019 and FY2020-Present. Download as image

Why published franchise failure rates disagree: each source measures something different

Source: U.S. Government Accountability Office, Small Business Administration: Review of 7(a) Guaranteed Loans to Select Franchisees (GAO-13-759); U.S. Small Business Administration (data.sba.gov), 7(a) & 504 FOIA loan-level data: 7(a) files FY1991-FY1999, FY2000-FY2009, FY2010-FY2019 and FY2020-Present; Finance Clearly, SBA 7(a) Charge-Off Rates by Franchise Brand, Industry and State (computed from SBA 7(a) loan-level data, FY1992-2026); U.S. Small Business Administration, Office of Inspector General, Evaluation Report 13-17: The SBA's Portfolio Risk Management Program Can Be Strengthened; U.S. Bureau of Labor Statistics, Business Employment Dynamics, Table 7: Survival of private sector establishments by opening year (Total Private); Carmen Cotei and Joseph Farhat (Pepperdine University Digital Commons), Thinking about starting a franchise business? Think again, The Journal of Entrepreneurial Finance, Vol. 26, Iss. 1; International Franchise Association and FRANdata, 2026 Franchising Economic Outlook; U.S. Bureau of Labor Statistics, Business Employment Dynamics, Table 7: Survival of private sector establishments by opening year (Accommodation and Food Services). Download as image

What percentage of franchises fail?

There is no single official number, and anyone quoting one is choosing a measure. The figure you see depends on what counts as failure: a defaulted loan, a closed location, a unit sold at a loss, or a franchisee who walked away.

The cleanest yardstick is SBA 7(a) loan data, because every loan has an outcome. Of franchise loans approved FY1992-2026 that were either paid in full or charged off, 16.0% were charged off. For independent businesses it was 15.8%. ClauseAudit's own recount of the same SBA files, as of June 30, 2026, puts franchises at 15.9% across 97,084 resolved loans.

Earlier government work found worse numbers for a narrower slice. The GAO reported that SBA paid its guaranty on about 28% of the 32,323 franchise loans approved FY2003-FY2012, roughly $1.5 billion in payments. That cohort ran straight into the Great Recession, and the figure is before any recoveries.

Keep in mind that a charged-off loan is a failed loan, not always a closed shop. Some owners sell, some keep operating under new debt, and some close without ever borrowing from SBA.

Do franchises fail less often than independent businesses?

Not by any measure that tracks real outcomes. The SBA data shows franchise and non-franchise borrowers moving in lockstep. Loans approved FY2000-FY2009 were charged off at 24.2% for franchises and 23.7% for everyone else. For FY2010-FY2014 it was 7.5% versus 6.9%.

Academic work agrees. A study of startups founded in 2004 and tracked for eight years found survival rates for franchises matched those of independents. The difference showed up in how they ended: franchise startups were 2.77 times more likely to exit through a merger or acquisition.

So the system, the training and the brand recognition do not lower the average risk. What they may change is the shape of it. Higher upfront fees and ongoing royalties can mean a franchise needs more revenue to break even than a similar independent shop.

Why do some franchise brands fail so much more than others?

The averages hide huge gaps between brands. Among brands with 400 or more SBA loans approved FY2000-FY2014, Cold Stone Creamery loans were charged off at 34.3% and Quiznos at 28.6%. Subway, with 3,002 loans, came in at 6.2%.

The SBA's Inspector General flagged this years ago. It found three high-volume franchises with historical default rates of at least 46% on loans disbursed 2002-2009: Planet Beach at 61%, Petland at 60% and Cold Stone Creamery at 46%. Of nearly 1,000 loans to those three, 501 defaulted.

Brand results come from a mix of causes. Some concepts grow too fast. Some carry build-out costs that the unit revenue never pays back. Others push supply markups or fee increases onto owners who have no room to absorb them. You cannot see most of this in a sales brochure, but you can see traces of it in the FDD and the franchise agreement.

How do you check a franchise's failure rate before you buy?

Start with Item 20 of the Franchise Disclosure Document. The FTC Franchise Rule requires three years of outlet counts, plus separate columns for terminations, non-renewals, outlets the franchisor bought back and units that ceased operations for other reasons. Add those columns up for each year and compare them with the total number of open franchised units.

Then work the phone. Item 20 must list every franchisee who left the system in the last fiscal year, or who has not communicated with the franchisor within 10 weeks of the document's issuance date. Call several of them. Ask why they left, what they lost and whether they would buy again.

Watch for these warning signs:

• Transfers that run high year after year, which can mean owners are selling out quietly instead of closing
• A rising count of units reacquired by the franchisor, which can make closures look smaller than they are
• An Item 20 note that franchisees signed confidentiality clauses, meaning former owners may not be free to talk
• Net unit growth that comes only from new sales while existing units keep dropping out
• Item 19 earnings claims that leave out closed or underperforming locations

Why do published franchise failure rates disagree so much?

Because each source counts a different event. SBA data counts loans that went bad. BLS counts locations that stopped reporting employees. FDD Item 20 counts outlets that changed hands, closed or were terminated inside one brand. FRANdata counts units it judges successful after adjustments.

Time frames differ too. The GAO's 28% covers a recession-heavy group of loans and is measured before recoveries. Our own count of franchise charge-offs for that same FY2003-FY2012 group, as of June 30, 2026, is 22.38%. Both are honest numbers. They just answer different questions.

When a broker, a franchisor or a blog quotes a failure rate, ask three things: who was counted, over what years, and what counted as failure. If they cannot answer, the number is not worth much to you.

What the survival numbers mean if you are about to sign

BLS figures cover every new private establishment, franchised or not, and they set a sober baseline. Of businesses opened in the year to March 2024, 77.9% were still open a year later. Five-year survival for the class of 2020 was 51.4%. For accommodation and food services, where many franchises operate, that same cohort's five-year rate was 59.3%.

Industry groups publish friendlier numbers. FRANdata's historical unit success rate is expected at about 94.2% for 2025, but it counts some closed units as successes when the lender was likely repaid. Treat it as a marketing-grade measure, not a failure rate.

For you, the practical takeaway is simple. Plan for the chance that the location does not make it, and read the contract with that outcome in mind. Ask what happens if you close in year three: do you still owe royalties for the remaining term, does your personal guarantee cover the lease, and can you sell the unit to someone else without the franchisor blocking it? Those answers decide whether a bad outcome is a setback or a financial disaster.

Sources and method

Every number on this page comes from the sources below, each opened and read on or before October 18, 2026. A second, independent review checked every figure against its source and corrected anything that did not match. Figures that could not be confirmed were left out.

1. U.S. Government Accountability Office, Small Business Administration: Review of 7(a) Guaranteed Loans to Select Franchisees (GAO-13-759) (Published September 10, 2013; publicly released November 13, 2013)
2. U.S. Small Business Administration, Office of Inspector General, Evaluation Report 13-17: The SBA's Portfolio Risk Management Program Can Be Strengthened (July 2, 2013)
3. U.S. Small Business Administration (data.sba.gov), 7(a) & 504 FOIA loan-level data: 7(a) files FY1991-FY1999, FY2000-FY2009, FY2010-FY2019 and FY2020-Present (Data as of June 30, 2026 (files posted July 21, 2026))
4. Finance Clearly, SBA 7(a) Charge-Off Rates by Franchise Brand, Industry and State (computed from SBA 7(a) loan-level data, FY1992-2026) (August 24, 2026 (initial publication))
5. U.S. Bureau of Labor Statistics, Business Employment Dynamics, Table 7: Survival of private sector establishments by opening year (Total Private) (Latest edition, data through March 2025)
6. U.S. Bureau of Labor Statistics, Business Employment Dynamics, Table 7: Survival of private sector establishments by opening year (Accommodation and Food Services) (Latest edition, data through March 2025)
7. International Franchise Association and FRANdata, 2026 Franchising Economic Outlook (2026 edition (February 2026))
8. Carmen Cotei and Joseph Farhat (Pepperdine University Digital Commons), Thinking about starting a franchise business? Think again, The Journal of Entrepreneurial Finance, Vol. 26, Iss. 1 (2024)
9. Electronic Code of Federal Regulations (National Archives and GPO), 16 CFR 436.5 Disclosure items, paragraph (t) Item 20: Outlets and Franchisee Information (FTC Franchise Rule) (eCFR text as of October 15, 2026)