How FUND Scores Determine Franchise Loan Rates, Risk, and Lender Outcomes
FRANdata analyzed more than 18,000 SBA 7(a) franchise loans to quantify how brand-level credit risk scores predict interest rates, default probability, and bank portfolio performance — giving lenders, franchisors, and investors a common financial language for franchise risk.
Access to capital determines how fast a franchise system grows. But for most franchisors, the specific mechanisms that determine whether their franchisees can get an SBA loan — and at what interest rate — have been opaque. FRANdata built the FUND Score to change that. This report quantifies what that change means in financial terms.
FRANdata matched its proprietary FUND Score database against publicly available SBA 7(a) loan data from 2010 to the present, producing a dataset of more than 18,000 franchise loans representing over $8 billion in total lending. The analysis applied regression modeling to measure the statistical relationship between FUND Score risk tiers and two critical loan outcome variables: charge-off rates and interest rates. A complementary analysis isolated the role of Historical Unit Success Rate (HSR) — an underlying FUND Score component — to assess its independent predictive value.
This report gives franchisors a quantifiable baseline for understanding how their brand’s credit profile affects franchisee borrowing costs and bank willingness to lend. It gives lenders a validated framework for using brand-level risk scores in underwriting and portfolio management. It gives private equity investors a data-driven lens on franchise system stability that goes beyond top-line unit counts and AUV.
FRANdata is the independent research firm the franchise industry turns to when it needs analysis that is grounded in primary data, free from commercial bias, and built to withstand lender scrutiny.
What This Report Covers
- FUND Score Charge-Off Correlation: Based on 18,000+ SBA 7(a) loans, FRANdata measured the statistical correlation between FUND Score risk tier and actual loan charge-off rates — with results significant at p < 0.001.
- Risk Tier Default Rates: High Risk brands (FUND Score below 400) carry approximately 15% charge-off probability; Minimal Risk brands (above 800) drop to below 2% — an 88% reduction in default likelihood.
- Interest Rate Differential by FUND Score: Regression modeling shows franchisees of Minimal Risk brands pay approximately 6.6% versus 9.0% for High Risk brands — a spread worth roughly $162,000 over a $1M, 10-year loan.
- Bank Portfolio Performance — Before vs. After FUND Scores: FRANdata tracked SBA loan portfolio charge-off rates for client banks before and after FUND Score adoption: average charge-offs fell from 6.94% to 5.68% — a nearly 20% improvement.
- Five-Tier Risk Framework Explained: The five FUND Score categories (High Risk, Moderate Risk, Average Risk, Low Risk, Minimal Risk) and the specific charge-off and interest rate outcomes associated with each, with coefficient data and approximate rates.
- Study Scale — $8 Billion in SBA Franchise Lending: The analysis covers more than $8 billion in SBA franchise loans, with an average loan size of approximately $500,000 and coverage across nearly 1,000 franchise brands.
- Historical Unit Success Rate (HSR) Standalone Analysis: A separate regression analysis isolating HSR’s standalone predictive value: high-HSR brands see 2.47% charge-off rates versus 10.72% for low-HSR brands — meaningful, but less predictive than the composite FUND Score.
Who This Is For
Franchisors & Franchise Development Teams
You are trying to understand why some franchisees move through SBA approval quickly and others stall — and whether your brand’s profile is part of the problem. This report gives you the answer in financial terms: the FUND Score directly determines the interest rate and default probability your franchisees face when they walk into a bank. FRANdata’s analysis translates that abstract score into $162,000 in potential savings per franchisee on a standard loan. You will leave this report knowing exactly which FUND Score thresholds trigger materially better lending outcomes, and what system-level variables — unit continuity, FDD transparency, historical franchisee success — drive your score up.
SBA & Conventional Franchise Lenders
You are evaluating franchise brands for loan approval and trying to price risk accurately across a portfolio of hundreds of franchise brands. Franchise lending is not like conventional small business lending — brand-level risk matters as much as borrower-level risk. FRANdata’s regression analysis, applied to 18,000 SBA 7(a) loans, validates FUND Score as a statistically significant predictor of both charge-off probability and interest rate spreads. Banks that integrated FUND Score data into their underwriting reduced average charge-offs from 6.94% to 5.68% — a reduction that compounds significantly across a large franchise portfolio.
Private Equity Firms & Franchise Investors
You are assessing franchise brands as platform acquisitions or add-ons and need to understand capital accessibility as a system-level health metric. A brand where franchisees can’t get SBA financing — or can only get it at elevated rates — is a growth-constrained system. FRANdata’s data shows that High Risk FUND Score brands carry a 15% charge-off rate across SBA loans; Minimal Risk brands carry less than 2%. That spread is a direct indicator of franchisee financial durability, lender confidence in the system, and the long-term sustainability of unit economics — all variables that belong in a quality-of-earnings analysis or investment thesis.
How FRANdata Conducts This Research
FRANdata operates as an independent research organization with no financial interest in the lending decisions or franchise transactions that this analysis informs. Our research team applies quantitative modeling to proprietary franchise data, publicly available regulatory data, and primary FDD documentation — producing findings that are reproducible, statistically tested, and free from the promotional framing that characterizes most franchise industry content.
Methodology for this report:
- FRANdata’s proprietary FUND Score database, covering nearly 1,000 franchise brands, segmented into five risk categories: High Risk, Moderate Risk, Average Risk, Low Risk, and Minimal Risk.
- Publicly available SBA 7(a) loan performance data from 2010 to present, matched to franchise brands in the FUND Score database to produce a working dataset of 18,000+ loans.
- Regression modeling applied to measure the relationship between FUND Score risk tier and (1) loan charge-off rates and (2) interest rates, with statistical significance tested using p-values.
- A secondary regression analysis isolating Historical Unit Success Rate (HSR) as an independent variable, separate from the composite FUND Score calculation.
- Before/after portfolio performance analysis for FRANdata client banks that adopted FUND Score underwriting, removing one outlier bank from the charge-off comparison per standard statistical methodology.
This report is produced for informational and research purposes. It does not constitute legal, financial, or investment advice. FRANdata makes no representation that past loan performance data predicts future outcomes for any specific brand, lender, or borrower.
Put This Intelligence to Work
Franchise Registry
The Franchise Registry is the recognized database for franchise brand eligibility verification. Membership signals to lenders that your brand’s FDD and franchise agreement have been reviewed and meet SBA standards — accelerating loan approvals and reducing friction for franchisee borrowers.
→ Learn about the Franchise Registry
FUND Score
The FUND Score gives your brand a quantitative credit risk rating that lenders can use in underwriting and pricing. This report demonstrates that the difference between a High Risk and Minimal Risk score translates directly into interest rate spreads and default probabilities. Understanding your score — and what drives it — is the first step toward improving franchisee access to capital at scale.
Bank Credit Reports
FRANdata’s Bank Credit Reports give SBA and conventional lenders a comprehensive brand-level risk profile for franchise systems under consideration. Each report draws on FDD data, FUND Score analysis, unit performance history, and franchisee financial indicators — assembled into the format lenders need to make faster, better-informed decisions.
→ Explore Bank Credit Reports for franchise lenders
Custom Research & Consulting
When a franchise system, private equity firm, or lender needs analysis tailored to a specific question — benchmarking a brand against peers, assessing acquisition targets, or building an investor-facing franchise market overview — FRANdata’s research team builds it. Our analysts have access to the most complete proprietary franchise dataset in the industry, built over 30 years of FDD collection and direct brand relationships.