HomeWhich Industry Has The Most SBA Loan Defaults? Learn What Can Be Done About Your SBA Loan.

Which Industry Has The Most SBA Loan Defaults? Learn What Can Be Done About Your SBA Loan.

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Hey there, my friend! Grab a cup of coffee, sit down and let’s talk.

You see, it’s like this. Few things in this world can give a small business that extra boost, that slight nudge in the right direction, the way an SBA loan can. The Small Business Administration works closely with lenders and the little guy to basically make everyone happy. But nothing comes with a guarantee. SBA loan defaults, they’re a real thing.

From 2006 to 2015, let me tell you, one in every six SBA loans tanked. Now, this could be due to many reasons but essentially, it all ties back to the state of the economy.

SBA Loans: An overview

The SBA doesn’t fork over dough for your business directly. Rather, it’s like a matchmaker – it builds connections between dependable lenders and driven business owners. The aim is to put everyone at ease – reducing risks and ensuring the borrowers can repay the loan. It’s like a game where all players win.

The fine print works out great for everyone too. For small business owners like yourself, we’re talking modest down payments, minimal collateral, not to mention competitive rates and fees. As for lenders, they have the assurance that recipients meet specific criteria before the loan is approved.

It also doesn’t hurt that there’s complimentary business counseling available. The entire setup is facilitated to help you get your business off the ground.

But alas, even the best-laid plans go awry. SBA loan defaults sometimes happen and a bunch of reasons can lead to this outcome.

SBA Loan Defaults and Economic Trends

Peek into the last decade and you’ll see this trend of SBA loan defaults. It’s crucial to understand why this is happening. A lot of studies link the surge in defaults back to the big, bad Great Recession.

Once the economy took a nosedive, it was a bit like playing dominoes – jobs got slashed, houses were foreclosed and the general lifestyle went down the drain.

The downward spiral had a ripple effect on the entire real estate industry. So, it stands to reason that most SBA loan defaults at this point were majorly from the real estate sector.

High SBA Loan Defaults: Which are at the top?

Things were fairly grim for mortgage and non-mortgage loan brokers, residential property managers, and real estate agents. Even multifamily construction businesses fell into a tough spot.

The impact of the Great Recession left a lasting imprint on these industries. Even as real estate sees a steady resurgence and the competition is heating up, businesses still struggle to return to their earlier glory days.

The Challenge for Real Estate Agencies

And let’s not forget the internet and its digital capabilities. These traditional brick-and-mortar brokerages are receiving quite a bit of flak from online resources and listing websites.

Today, tech advantages have made buying and selling houses not just more comfortable but also more affordable. With lower operational costs, these online agencies can charge less for listing fees and commissions. And that’s putting a fair bit of stress on traditional real estate agencies. But that’s not the end of it.

Residential real estate isn’t the only industry leading the SBA default statistics. Even other sectors have taken a hit due to modern economic shifts and technological advances.

The Downfall of Media Rental Companies

Video and disc rental companies – their SBA loan default rate from 2006-2015 stood at a staggering 42.7%. It isn’t hard to see why considering our current entertainment consumption trend.

Think about it. People don’t need to walk into stores anymore to rent a movie, nor do they need physical DVDs or CDs. Streaming services have revolutionized the entertainment landscape. No surprise then, this change has led to many business failures for multimedia rental companies.

Franchising Businesses and SBA Loan Defaults

Another group you may not expect are franchising businesses, yet they’ve also been found to be quite prone to defaults. Now, if you’re mulling over buying a franchise, you might want to proceed with caution.

Feeling the Heat in the Food Chain

From 2000 to 2016, Wings-N-Things topped the chart as the franchise with the highest SBA loan default rate – a whopping 88.89%. Noble Roman Pizza followed closely with a default rate of 88.00%.

Smaller fast food chains, fitness centers, tanning studios – these are just some of the many small business franchises that folded under the pressure.

The Silver Lining for Food Franchises

But hey, it’s not all doom and gloom. Big names like Buffalo Wild Wings and Wendy’s are still standing strong. This just shows that industry segments don’t necessarily determine success. Many factors come into play – name recognition, management styles, and more.

As we continue to navigate this unpredictable market, flexibility remains crucial. A one-size-fits-all approach doesn’t cut it anymore. And if you already have a business struggling to pay back your SBA loans, don’t worry. You have options.

Staving off Loan Default: The Way Forward

Let me tell you, the best way to sidestep a loan default is to avoid dabbly in industries with a high failure rate to begin with.

Jot down your homework

Carry out comprehensive research on the industry you’re passionate about. Learn which businesses are flourishing and which aren’t.

Work out the True Costs

Budget for all factors – location, start-up costs, advertising, corporate support for franchises. Each of these can greatly affect your business’s success.

Keep your focus on the Target Market

Low operating costs might be enticing, but they could be tied to low-traffic areas. Although it might be cheaper at the onset, survival in the long-term might be tough due to a smaller customer base.

Peer into the Future

Try to predict which industries have growth potential. Pay attention to the red flags and avoid industries that are on a downward trajectory.

So, if you’re having a tough time repaying your SBA loans, worry not. Seek help from professional sources, such as our team at Lawscape. We’re here to help you navigate these rough waters.

SBA loan-related issues can seem daunting, but believe me, they’re not insurmountable. Just remember, our team has successfully resolved millions of dollars in SBA debts via Offer in Compromise and negotiated repayment agreements. And we’ve done all this without our clients needing to file for bankruptcy or facing home foreclosure.

Don’t hesitate to set up a case evaluation with Lawscape. Thanks for the chat and, as always, the coffee’s on me next time! Link

Remember, every setback is only a setup for a comeback. Stay determined and keep moving forward!

Lawscape Can Help You Manage Your Business Debt

If you’re struggling with business debt, we can help you understand your situation. During the initial consultation, we’ll go over the contract, and other legal documents you signed. After that, our firm will work with you to get a better understanding of your situation, and help you come up with a game plan that keeps your business alive. 

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Everyone has different types of business debt. What matters is that you take it seriously. Regardless of whether it’s secured, or unsecured, you need to work with a firm that understands how to negotiate, reduce, settle, and manage, this business debt. 

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