Many buyers use the SBA Franchise Directory as a benchmark for quality as these are supposedly “approved” franchises. Yet THOUSANDS of buyers have lost, and many more will lose their money with SBA approved businesses. The SBA directory does NOT exclusively contain quality franchises as we will explore today on Franchise City.
The SBA, or Small Business Administration is an arm of the government that will secure part of the loan of approved businesses and franchises. Now the misperception of buyers is that somehow these franchises that are listed in the directory are somehow vetted by the SBA. There is certain criteria to be included in the list, however the SBA does not really look at operations or flaws in the business model that could lead to failure. In fact many, many low performing brands are included on the SBA list, some with up to a 92% failure rate. So despite having more than a 9 out of 10 chance of failure, the government, using taxpayer dollars, that’s you, will guarantee your loan.
Anyone can download the list available on the SBA’s website. As stated on their website “This list is made available for use by Lenders/CDCs in evaluating the eligibility of a small business that operates under an agreement”. So banks can come here, download the list and see which brands qualify for the SBA loan. The general public can also download the list and The SBA has added in fine print “Placement of a franchise brand on the Franchise Directory is not an endorsement or approval of the brand and does not ensure the success of the business.” No kidding.
The SBA is a great idea, a program that helps new entrepreneurs get access to funding that would otherwise be unavailable. But the system is broken. We recently made a video on the top 10 worst franchises by SBA failure rate, Ill include that link at the end of this video. These were all SBA approved businesses with up to a 92% failure rate that continue to sell franchises risking taxpayer dollars.
I downloaded the most recent SBA approved franchises list. Even at first glance I see dozens of franchises that have abysmal failure rates. Yet they are ranked on the Entrepreneur Franchise 500 list, they are SBA approved, they have tons of online industry media hype, so they must be good right? We covered the fallacy of the Franchse 500 list Ill place the link above and at the end of the video.
Politicians are starting to wake up to this ongoing problem but the industry is like a huge freight train with lobby groups and corporate industries with very deep pockets. A while back Senator Catherine Cortez Mosto in Nevada submitted a letter to the SBA about loans provided to Subway, Dickey’s Barbecue Pit, Complete Nutrition and Experimac. Mosto is seeking the SBA’s help to buyers to avoid default. She is also requesting that the SBA take action again “unfair and deceptive practices” in the franchise market. We covered Subway failure rates years ago and cautioned buyers on some of the systemic problems facing the brand.
By the way, anyone in the government watching – we have that process of scrutiny already built here at Franchise City, you can plug any franchise into it and it will make a determination on the soundness of a Franchise and level of risk. We’ve been providing our candidates with this free tool for years.
And it isn’t only the SBA, there are multiple conspirators in the industry that continue to hype the infallibility of franchising. These include industry toplists, much of the media and internet portal websites.
We covered this ongoing scheme in “The Dark Side of Franchising”, $3 bucks on Amazon and a free download on the 15th of every month. Every year thousands more people pile into franchises that are validated by media toplists, are SBA approved, and have multiple industry accolades. These things make people feel confident in their decision to invest. But all of these things, when you peel away the curtain, provide no guarantee of success. And this game is allowed to continue, year after year with literally thousands of people convinced their entrepreneurial journey was a sound one, lose everything.
There are good franchises out there, but you need to use data, not industry hype to make your decision. Our FREE service can help https://www.franchise.city/our-services