Same SBA Program: One Brand Repaid Every Loan, Another Lost Most

Dan Lorenz | October 20, 2026

The Zorzee Report | Issue #22 | SBA Funding, Part 2 of 2

Note: Rules from SBA SOP 50 10 8.1, effective October 1, 2026, and the fiscal 2027 7(a) fee notice. Charge-off figures from an independent analysis of SBA FOIA loan records, 7(a) loans approved fiscal 2010 through 2019, statuses as of June 30, 2026. Prime as of October 14, 2026 (Federal Reserve H.15). The Fed meets October 27 and 28; check the rate the week you read this.

Culver's franchisees took 178 SBA 7(a) loans approved between fiscal 2010 and 2019 that have since been paid off or written off. None were written off. Experimac franchisees took 59. The government wrote off 41.

Same program. Same guarantee, same rate caps, same rulebook. The only variable that changed was the brand on the door.

Friday's issue covered how SBA money works: the bank lends, the government guarantees, and Item 7 sets the size of the loan. This one covers what changed on October 1, what it costs you now, and the record the SBA keeps on how each brand's franchisees paid it back. That last part is the one most investors never see, and it's public.

The SBA runs its lending programs off a manual called a Standard Operating Procedure. The newest version, SOP 50 10 8.1, applies to any application issued an SBA loan number on or after October 1, 2026. Applications already in the system before then stay on the prior version.

For a candidate opening a new unit, the core math from Part 1 holds: a startup still brings at least 10% of total project cost, and the Item 7 total is still the project. The biggest changes land on investors buying an existing business, which in franchising means a resale.

If you're the new majority owner of an existing unit, the SBA now calls that an initial acquisition, and the 10% equity injection can't be reduced or waived (SOP 50 10 8.1, Appendix 15). A seller note can still help, but seller debt on standby, other standby debt, and money from non-controlling minority investors can together cover no more than half of the required 10%. The other half is your cash.

Most change-of-ownership deals now need cash flow covering debt payments at least 1.25 times, up from 1.15. Purchases of $3 million or more need a Quality of Earnings report, an outside accounting review of whether the seller's profits are real.

The zero-down resale pitch, where the seller carries the whole down payment, is finished. A resale with a strong seller note still works. It works with your 5% at minimum.

The SBA charges an upfront guarantee fee on every 7(a) loan, figured on the guaranteed portion, not the full loan. For loans approved October 1, 2026 through September 30, 2027 (fiscal 2027 fee notice):

On a $600,000 loan, the SBA guarantees 75%, or $450,000. At 3%, the fee is $13,500. Whether you pay it in cash or finance it into the loan, put it in your sources and uses. It's the line most first-time budgets leave off.

New this year: the upfront fee drops to 0% on loans of $700,000 or less to manufacturers, certain food supply-chain businesses, and businesses located in a rural area. The SBA decides rural in its own system using the project address and Census Bureau data, so the answer comes from the address, not from how the town feels.

That makes the rural waiver the most interesting franchise detail in the notice. A $600,000 loan for a unit in a qualifying county saves the full $13,500. Run the inversion before you chase it: an address that qualifies as rural is, by definition, a smaller and thinner trade area, and Item 19 averages are rarely built on rural units. A free fee doesn't make a market. Ask the franchisor how its rural units perform against the system, then ask your lender to check the address before you count the savings.

The lender also pays the SBA an annual service fee of 0.55% of the outstanding guaranteed balance. That one belongs to the bank.

Every SBA loan is public record, down to the franchise brand and how the loan ended. An independent analysis of those FOIA files, franchisefailurerates.com, takes every 7(a) loan approved from fiscal 2010 through 2019 that has since resolved, meaning paid in full or charged off, and computes the share the government wrote off. It ranks only brands with at least 50 resolved loans. That's the method behind every brand figure in this section, and it's the only one I use here, because the competing analyses count different years and different denominators and their numbers don't reconcile.

Across 415 brands, 8.8% of resolved franchise loans were charged off (2,348 of 26,660). One more figure from the same data deserves a pause: franchised SBA borrowers overall charged off at 10.2%, against 7.8% for non-franchised ones. A franchise label didn't make the loan safer. The brand did.

At the strong end, Culver's went 0 for 178, Wingstop 0 for 149, and Club Pilates, from our Pilates series, 0 for 151. The UPS Store charged off 3 of 447 resolved loans, and Primrose Schools 1 of 190.

At the other end, Experimac charged off 41 of 59 (69.5%), Window Genie 29 of 50 (58.0%), and Dickey's Barbecue Pit 63 of 208 (30.3%), the largest loan count among the brands at the top of the list. F45 Training, from our boutique fitness series, charged off 14 of 72 (19.4%).

Now read it the other way, because this data is easier to misuse than an Item 19.

These loans were approved seven to seventeen years ago. Brands change owners, fees, models, and support teams in that time, and several on both lists have. A charge-off also tells you a loan went bad, not why: a weak site, an undercapitalized owner, a bad lease, or a system problem all look the same in the file. A clean record can mislead too. A brand that grew fast late in the window has fewer loans old enough to resolve, and a young system's 0% may only mean its loans haven't had time to fail. None of this is a verdict on any brand today.

What the record does is give you an outside check the franchisor didn't write. Use it as a question. If a brand you're researching sits near the top of the charge-off list, ask the franchisor what changed since 2019 and ask the operators who opened in the last three years (Item 20) whether the new answer is showing up in their bank accounts. If it sits near the bottom, ask whether the units opening now look like the ones that paid their loans back. The answer is worth more than the percentage.

Ownership now decides affiliation. Since the SBA reinstated the Franchise Directory in 2025, it measures affiliation by who owns what, not by how much control the franchisor has (Taft Law). That cleared the way for brands that were turned down over franchisor control. It also means your other businesses count: own more than half of another company, or a meaningful stake in one in the same line of work, and the SBA may add it to your size test and your total exposure. Disclose everything to the lender up front.

A management company makes the business passive. The SBA doesn't lend to passive businesses. A semi-absentee owner with a general manager on payroll is a normal franchise model. Handing the unit to an outside management company to run is a different structure, and Directory listings for some brands carry a note requiring the lender to review that arrangement. Ask your lender before you build the plan around it.

Cash you can't document doesn't count. The lender verifies the equity before funding, with account statements showing where it came from. A sudden deposit without a paper trail, or a gift with no gift letter and no transfer record, stalls the file. Season the money early.

H.R. 915, the Small Business Technological Advancement Act, would let 7(a) loans finance business software, cloud services, and AI tools. It passed the House 414 to 4 and is pending in the Senate. It isn't law, and no lender can underwrite to it yet. If it passes, ask your lender whether your brand's required software and technology costs would qualify.

The Fed meets October 27 and 28. Prime sat at 7.00% through October 14, which put the cap on most franchise-size 7(a) loans at 10.00%. A move in either direction changes a variable-rate payment the month it takes effect.

Two issues, one question: who is actually taking the risk on your franchise loan?

Part 1 showed the bank lends, the government guarantees the bank, and you guarantee everything with your own name, sized off a franchisor's Item 7 estimate. Part 2 showed the rules tightened on October 1, the fee you pay depends on the loan size and sometimes the address, and the brand decides more about whether the loan gets repaid than any rule does.

The SBA's own records sit next to the FDD as the one document neither the franchisor nor the lender wrote for you. Read both. Be the Investor, Not the Consumer.

Pro subscribers get the reasoning behind every number on the portal: what each brand's filing means for your deal, the inversion on every signal, and the questions to bring to the lender. Upgrade to Zorzee Pro.

November picks the brand series back up with a new category.

If you're financing a franchise, buying a resale, or trying to read a brand's SBA record against its FDD, that's what I do. I can tell you in 15 minutes whether the numbers support the plan. My consulting costs you nothing. Book the Free Zorzee Clarity Call.

Read the dossiers behind this issue's repayment records: Culver's, Wingstop, Club Pilates, The UPS Store, Primrose Schools, Window Genie, and F45 Training. Two of them meet head to head: Popeyes vs Wingstop. Every comparison lives at zorzee.com/compare.

Browse 650+ franchise dossiers at zorzee.com.

Grab the free Five Signals Franchise Audit Guide: 30 signals across 5 buckets that tell you whether any franchise document holds up. Fee Structure, Unit Economics, Litigation History, Operator Validation, Term and Exit Terms. Same framework Zorzee applies to every brand.

Already own a franchise, or deep into the validation process and the numbers aren't matching what you were told? Books Brothers does a free 15-minute Cash Flow Audit. See how it works at booksbrothers.co.

THE ZORZEE REPORT
No commissions. No franchisor revenue. Independent analysis only.
Subscribe | Forward to someone evaluating a franchise

This newsletter is for educational and informational purposes only. Nothing in this issue constitutes financial, legal, or investment advice. I am not a licensed financial advisor, CPA, or attorney, and I am not a lender. SBA rules are sourced from SBA SOP 50 10 8.1 (effective October 1, 2026) and the fiscal 2027 7(a) fee notice, cross-checked against published lender and law-firm summaries. Charge-off figures come from an independent analysis of public SBA FOIA loan data (franchisefailurerates.com; 7(a) loans approved fiscal 2010 through 2019, statuses as of June 30, 2026, rate = loans charged off divided by loans resolved). A historical charge-off rate reflects loans made years ago and does not describe any brand's current franchise offering, management, or performance, and does not predict future results. Prime rate from the Federal Reserve H.15 release dated October 15, 2026. Rates, fees, and program rules change. Lender requirements vary. All data should be independently verified. Consult qualified legal, financial, and lending professionals before making any investment decision.

Editorial independence and disclosures: zorzee.com/disclosures