Why SBA Default Rates by Industry Should Matter to Every Buyer
When you apply for an SBA loan to buy a business, the lender isn’t just underwriting you — they’re underwriting the industry. Every SBA lender maintains internal data on which industries perform well and which ones don’t. And while they won’t always tell you directly, your industry choice significantly affects your approval odds, interest rate, and loan terms.
Understanding default rates by industry gives you a strategic advantage. If you’re buying a business in a low-default industry, you can leverage that in your application. If you’re in a higher-risk category, you need to know how to position your deal to overcome lender hesitation.
At GoSBA, we’ve helped fund over $320 million in SBA loans in 2025 across dozens of industries. We’ve learned exactly which industries lenders love, which ones make them nervous, and how to present any deal in the best possible light.
Industries With the Lowest SBA Loan Default Rates
Based on SBA data and lender feedback, these industries consistently show the lowest default rates on SBA 7(a) loans. Lower defaults mean lenders are more enthusiastic about funding deals in these sectors.
Healthcare and Medical Practices
- Default rate: Among the lowest of all SBA-funded industries
- Includes: dental practices, veterinary clinics, optometry, physical therapy, home health, urgent care, medical specialty practices
- Why it performs well: recession-resistant demand, high barriers to entry, strong recurring revenue, licensed professionals running the businesses
- Lenders love healthcare deals because patients need care regardless of economic conditions
- Caveat: practices heavily dependent on a single provider or a single insurance contract carry more risk
Professional Services
- Default rate: Consistently low across accounting, engineering, consulting, and legal services
- Why it performs well: low overhead, high margins, recurring client relationships, educated operators
- Accounting firms and tax practices are especially attractive to lenders because of predictable seasonal revenue
- Engineering and consulting firms with government contracts are considered very stable
Funeral Services
- Default rate: Extremely low — one of the safest SBA loan categories
- Why it performs well: non-discretionary demand, local monopoly dynamics, high barriers to entry, stable demographics
- Aging population trends make this industry even more attractive to lenders through 2030+
- Pre-need contracts provide predictable future revenue streams
Waste Management and Environmental Services
- Default rate: Very low
- Why it performs well: contract-based revenue, essential services, high switching costs for customers
- Includes: waste hauling, recycling operations, environmental remediation, portable sanitation
- Long-term municipal contracts provide revenue stability that lenders find very attractive
Insurance Agencies
- Default rate: Among the lowest in financial services
- Why it performs well: recurring commission income, high client retention rates, relatively low overhead
- Book of business provides predictable revenue that survives ownership transitions well
- Lenders can clearly value the business based on revenue multiples and retention rates
Childcare and Early Education
- Default rate: Low, especially for established centers with waiting lists
- Why it performs well: essential service for working families, recurring monthly tuition, high demand in most markets
- Government subsidies and employer partnerships provide additional revenue stability
- Licensed capacity creates a natural barrier to competition
Commercial and Residential Property Services
- Default rate: Low across the category
- Includes: commercial cleaning, landscaping, pest control, HVAC, plumbing, electrical
- Why it performs well: contract-based recurring revenue, essential services, fragmented market with strong local demand
- Pest control and commercial cleaning are particularly popular with SBA lenders due to monthly recurring contracts
Industries With Moderate SBA Default Rates
These industries aren’t deal-killers, but they require more careful presentation to lenders. Default rates are moderate — meaning lenders will fund deals here but may scrutinize more closely.
Manufacturing
- Default rates are moderate and vary significantly by sub-sector
- Niche manufacturing with proprietary products or long-term contracts performs well
- Commodity manufacturing with thin margins and heavy competition carries more risk
- Lenders look carefully at customer concentration, equipment condition, and workforce stability
Retail (Non-Restaurant)
- Brick-and-mortar retail has faced headwinds from e-commerce, pushing default rates higher than a decade ago
- Specialty retail with strong local niches and online presence performs better
- Auto parts, pet supplies, and specialty food retail tend to have lower default rates than general merchandise
- Lenders will scrutinize lease terms, foot traffic trends, and online competition carefully
Franchises
- Default rates vary enormously by franchise brand — established brands like Chick-fil-A or Home Instead have very different profiles than newer concepts
- The SBA Franchise Directory determines eligibility, and lenders have internal rankings of franchise performance
- Multi-unit operators and established franchise territories tend to perform better
- Lenders may offer better terms for franchises with strong Item 19 financial performance data
Transportation and Logistics
- Trucking and freight brokerage have moderate default rates, heavily influenced by economic cycles
- Asset-heavy businesses (fleet ownership) carry more risk than asset-light models (brokerage)
- Lenders look at contract diversification, equipment age, and driver retention
Industries With Higher SBA Default Rates
These industries have historically higher default rates, meaning lenders are more cautious. It doesn’t mean you can’t get funded — it means you need to be better prepared.
Restaurants and Food Service
- Default rate: Among the highest of all SBA-funded industries
- High failure rates are well-documented — thin margins, heavy competition, labor challenges, and sensitivity to economic downturns
- However, established restaurants with 5+ years of profitable history can get funded
- Lenders strongly prefer franchise restaurants over independent concepts for acquisitions
- Strong management experience and a realistic business plan are essential
Hotels and Hospitality
- Highly cyclical industry with significant default rate spikes during economic downturns
- COVID-era defaults have made many lenders gun-shy about hotel deals
- Flagged hotels (Hilton, Marriott, IHG brands) get funded more easily than independents
- SBA 504 loans are common for hotel acquisitions involving real estate
Construction and Contracting
- Cyclical revenue, project-based cash flow, and thin margins contribute to higher defaults
- General contractors carry more risk than specialty subcontractors with steady work
- Lenders look carefully at backlog, bonding capacity, and customer concentration
Gas Stations and Convenience Stores
- Environmental liability concerns (underground storage tanks) add risk
- Thin fuel margins mean the business lives or dies on inside sales
- Some lenders specialize in this niche; many avoid it entirely
- Branded stations (Shell, BP, etc.) tend to get better treatment than unbranded
Why Lenders Prefer Certain Industries
Understanding lender psychology helps you position your deal more effectively:
Predictable Revenue Is King
- Industries with recurring, contract-based, or subscription revenue have the lowest default rates for a reason: predictable cash flow means predictable loan repayment
- If your target business has recurring revenue — monthly contracts, retainers, subscriptions — emphasize this heavily in your business plan
Essential Services Beat Discretionary Spending
- Businesses that provide services people need (healthcare, waste removal, pest control) outperform those that provide things people want (restaurants, entertainment, luxury retail)
- Recession resistance is a major factor in lender confidence
High Barriers to Entry = Lower Risk
- Industries requiring licenses, certifications, specialized equipment, or regulatory compliance have natural competitive moats
- These barriers protect the business from new competition, which protects the lender’s collateral
Owner-Operator vs. Absentee Models
- Lenders generally prefer businesses that can be run by an engaged owner-operator
- Absentee-owner models carry more risk because the new buyer may not maintain the same level of oversight
- If you plan to be hands-on, make that clear in your application
How Industry Choice Affects Your Approval Odds
Here’s the practical impact of industry on your SBA loan application:
- Low-default industries may qualify for lower interest rates (closer to prime + 1.5% vs. prime + 2.75%)
- Low-default industries may require lower borrower injection (10% vs. 15-20%)
- High-default industries may face additional requirements: larger down payments, additional collateral, stronger personal guarantees, or shorter loan terms
- Some lenders have industry exclusion lists — they simply won’t fund deals in certain sectors. A broker can help you avoid wasting time with the wrong lender
- Industry experience matters more in higher-risk sectors. Buying a restaurant with no food service experience is a much harder sell than buying one with 10 years of management experience
How to Present Your Deal in the Best Light — Regardless of Industry
Even if your target business is in a higher-default industry, there are proven strategies to improve your approval odds:
Emphasize What Makes This Business Different
- Long operating history (10+ years) signals stability
- Diversified customer base reduces concentration risk
- Strong brand recognition and reputation in the local market
- Recurring revenue or long-term contracts that differentiate it from industry averages
Show Relevant Experience
- Industry experience dramatically reduces perceived risk
- If you don’t have direct experience, highlight transferable skills and your plan to retain key employees
- Management experience in any industry shows you can run a business
Build Conservative, Credible Projections
- Lenders see right through aggressive projections — especially in high-risk industries
- Show that the business can service debt even if revenue stays flat or declines slightly
- Include sensitivity analysis showing downside scenarios
Bring More Equity to the Table
- In higher-risk industries, offering 15-20% down instead of the minimum 10% shows commitment and reduces lender risk
- Seller notes can count toward your equity injection, but lenders still want to see meaningful cash from you
GoSBA Knows How to Position Any Industry for Approval
At GoSBA, we don’t avoid difficult industries — we know how to get them funded. Here’s our advantage:
- 50+ lender network with diverse industry appetites: Some of our lenders specialize in restaurants. Others focus on healthcare. Others love manufacturing. We match your deal to lenders who are comfortable with your industry
- Free business plan and financial projections: We build professional, lender-ready documents that present your deal in the best possible light — emphasizing the strengths and proactively addressing the risks. This package is worth $2,500-$5,000 and costs you nothing
- $320M+ funded in 2025 across all industries: We’ve closed deals in restaurants, gas stations, hotels, healthcare, manufacturing, professional services, and everything in between
- We know what each lender wants to see. Different lenders in different industries want different things in the business plan. We customize your package for maximum impact
- Completely free service: GoSBA is paid by the lender, not you. Our industry expertise and lender matching cost you nothing
Don’t Let Industry Stereotypes Kill Your Deal
Every industry has successful businesses and struggling businesses. The lender’s job is to figure out which category your target falls into. Your job — with GoSBA’s help — is to make the case that this specific business, with you as the owner, is a strong bet.
Contact GoSBA today for a free consultation. Tell us about the business you want to buy — the industry, the numbers, the story — and we’ll tell you exactly how to position it for SBA approval. We’ll build your business plan for free, match you with lenders who are active in your industry, and help you close.
Every industry has a path to SBA approval. Let us show you yours. Get started now →
