{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/how-to-tell-if-a-franchise-is-safe-to-buy","api_url":"https://dealroom.so/api/public/questions/how-to-tell-if-a-franchise-is-safe-to-buy","question":"How do I know if a franchise is safe to buy?","topic":"Buying a franchise","audience":"borrower","bot_mode":"buyer","short_answer":"Look at the brand's real SBA failure rate with enough loan volume to trust it — a brand with hundreds of funded loans and a low charge-off rate has a proven model, whatever a 'best franchise' list says.","rule":"SBA doesn't rate franchises, but it funds them, and those loans become public records. The honest safety signal is the share of a brand's loans that charged off over a fixed cohort of years (FY2020–23), not marketing. Pair that failure rate with how many loans the brand has — a clean record over 100+ loans is a system; a clean record over 12 loans is luck.","example":"Before signing a franchise agreement, pull the brand's funded-loan count and cohort failure rate. A brand financing 300+ deals with under 2% charge-offs is a strong pick; the same rate over 20 deals isn't conclusive. Cross-check the typical loan size so you know what lenders actually fund for the brand.","what_lenders_check":"Lenders track brand performance the same way. A franchise with a clean cohort record gets faster approvals and better spreads because the bank has seen the model repay repeatedly; a high-failure brand draws scrutiny or a decline.","required_facts":[],"source_families":["SBA 7(a) loan program"],"official_sources":[{"title":"SBA 7(a) loan program","url":"https://www.sba.gov/funding-programs/loans/7a-loans"}],"related_questions":[],"related_terms":[{"term":"Buy-Sell Agreement","url":"https://dealroom.so/glossary/buy-sell-agreement"},{"term":"Know Your Customer","url":"https://dealroom.so/glossary/know-your-customer"},{"term":"Franchise","url":"https://dealroom.so/glossary/franchise"},{"term":"Phase I ESA","url":"https://dealroom.so/glossary/phase-i-esa"},{"term":"Form I-551","url":"https://dealroom.so/glossary/form-i-551"},{"term":"Phase I environmental report","url":"https://dealroom.so/glossary/phase-i-environmental-report"}],"related_tools":[{"name":"Franchise finder","url":"https://dealroom.so/franchises"}],"data_freshness":{"last_reviewed":"2026-06-16","sba_rule_sources_checked_through":"2026-06-16"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/sba-7a/questions/how-to-tell-if-a-franchise-is-safe-to-buy","source_type":"DealRoom Q&A"},"caveats":["Grounded in the current SBA rulebook; verify against official sources before relying on it for a live deal.","Not legal, tax, or financial advice and not an approval decision."]}