You have probably seen the headline: "SBA loan default rates are 15–20%." That number is technically in the right ballpark — but it obscures the real story. SBA loan performance varies dramatically by industry, loan size, geography, and lender. A restaurant loan and a healthcare practice loan are both "SBA 7(a) loans," but their chargeoff rates differ by 15+ percentage points. The PeerSense database contains over 2.1 million SBA loan records spanning two decades, matched to 899 lenders across every NAICS code. This guide uses that data to show what SBA default rates actually look like by industry — and more importantly, what those rates mean for you as a borrower.
1What "Default Rate" Actually Means (And What It Does Not)
Before diving into the numbers, it is critical to understand what "default rate" means in the SBA context — because the term is used loosely and often incorrectly.
Chargeoff (what the SBA reports)
A chargeoff occurs when the SBA purchases the guaranteed portion of a loan from the lender because the borrower stopped making payments and the lender could not recover the full amount through collections or liquidation. The SBA's chargeoff rate is the percentage of loan dollars charged off relative to total loan dollars disbursed. This is the number most commonly cited as the "default rate."
Default vs Chargeoff (they are not the same)
A borrower can default on an SBA loan (miss payments, violate covenants) without the loan being charged off. Many defaults are resolved through workout arrangements, loan modifications, or the borrower catching up on payments. The chargeoff rate understates the total default rate but overstates the permanent loss rate — some charged-off loans recover partial amounts through asset liquidation.
Chargeoff Rate vs Failure Rate (apples and oranges)
The SBA chargeoff rate measures loan performance. The business failure rate measures business survival. These are related but different metrics. A business can fail without the SBA loan being charged off (if the borrower repays from personal assets or the collateral covers the balance). Conversely, a loan can be charged off while the business continues to operate (if the borrower strategically defaults on the SBA loan but keeps the business running).
The Bottom Line on Metrics
When someone says "SBA loans have a 15% default rate," they usually mean the chargeoff rate — which is the percentage of loan dollars the SBA purchased from lenders due to borrower non-payment. It does not mean 15% of businesses fail, and it does not mean 15% of borrowers lose everything. Context matters enormously, and the industry-level data tells a much more nuanced story.
2SBA Chargeoff Rates by Industry: The Data
The following table shows SBA 7(a) chargeoff rates by major NAICS sector, based on analysis of the 2.1 million loans in the PeerSense database. These are historical chargeoff rates across the full life of the SBA program data — not single-year snapshots.
| Industry (NAICS Sector) | Chargeoff Rate | Risk Tier | Key Driver |
|---|---|---|---|
| Accommodation & Food Services (72) | 23–28% | Highest Risk | Thin margins, high competition, lease dependency |
| Arts, Entertainment & Recreation (71) | 20–25% | High Risk | Revenue volatility, seasonal dependency |
| Retail Trade (44–45) | 18–22% | Above Average | E-commerce disruption, foot traffic decline |
| Construction (23) | 16–20% | Above Average | Cyclical revenue, project-based cash flow |
| Transportation & Warehousing (48–49) | 15–19% | Moderate | Equipment-heavy, fuel cost exposure |
| Manufacturing (31–33) | 14–18% | Moderate | Capital-intensive, cyclical demand |
| Other Services (81) | 13–17% | Moderate | Diverse subsectors, varies significantly |
| Wholesale Trade (42) | 12–16% | Below Average | Established supply chains, B2B relationships |
| Professional, Scientific & Technical (54) | 10–14% | Lower Risk | Recurring revenue, high margins, low capex |
| Healthcare & Social Assistance (62) | 8–12% | Lowest Risk | Stable demand, insurance reimbursement, recession-resistant |
The spread is enormous: healthcare SBA loans charge off at roughly one-third the rate of accommodation and food service loans. That is a structural difference driven by industry economics — not by borrower quality or lender practices.
Explore the full industry-level data — including chargeoff rates by NAICS code, average loan size, and top lenders by industry — on our Industry Data page.
3Why Some Industries Have Higher Default Rates
The industry-level variation in SBA chargeoff rates is not random. It reflects fundamental differences in how businesses in each sector generate revenue, manage costs, and weather economic cycles. Understanding these drivers helps you assess the real risk of your specific deal — not just the average for your industry.
Accommodation & Food Services (72): Thin margins and high fixed costs
Restaurants and hotels operate on razor-thin margins (3–9% net margin for restaurants, 10–15% for hotels) with high fixed costs (rent, labor, insurance). A 10% drop in revenue can eliminate all profit and make debt service impossible. The business model has almost no margin for error, which is why the chargeoff rate is the highest of any NAICS sector.
Healthcare (62): Stable demand and recurring revenue
Healthcare practices (dental, veterinary, optometry, medical) have stable demand regardless of economic cycles — people need medical care in recessions and expansions alike. Revenue is largely recurring (patients come back) and often insurance-backed (reducing collection risk). These structural advantages produce the lowest chargeoff rate in the SBA portfolio.
Professional Services (54): High margins and low capital requirements
Accounting firms, consulting practices, law firms, and IT service companies have high margins (20–40%+ net margin), low capital requirements (no inventory, minimal equipment), and recurring client relationships. The cost of debt service is small relative to revenue, and the business can flex costs (reduce staffing) faster than asset-heavy industries. This combination produces consistently low chargeoff rates.
Retail Trade (44–45): Structural disruption
Retail has been under sustained pressure from e-commerce for over a decade. Businesses that rely on foot traffic and physical retail space face declining customer counts and increasing rent-to-revenue ratios. The SBA chargeoff rate for retail reflects this structural headwind — not a temporary downturn, but a permanent shift in how consumers shop.
4What Default Rates Mean for Borrowers: It Is the Industry, Not the Bank
If you are a borrower, the most important insight from this data is that SBA loan performance is driven primarily by industry, not by lender. A restaurant SBA loan from the best lender in the country still carries a 23–28% chargeoff rate because the industry economics are the industry economics. A healthcare SBA loan from a mediocre lender still has an 8–12% chargeoff rate because healthcare fundamentals are strong.
This has several practical implications:
Higher-risk industries require stronger borrower profiles
If you are buying a restaurant, lenders know the industry chargeoff rate is 23–28%. To approve your loan, they need to see factors that make your deal better than average: strong operator experience, prime location, established brand, conservative leverage (higher down payment), and robust working capital reserves. In a high-risk industry, you cannot have any weakness in your borrower profile.
Lower-risk industries give you more leverage in negotiations
If you are buying a dental practice, the chargeoff rate is 8–12%. Lenders compete for this business because the risk-adjusted return is attractive. You have leverage to negotiate better rates (Prime + 2.25% instead of Prime + 2.75%), lower down payments (10% instead of 20%), and faster processing.
Lender specialization matters more than lender size
A regional bank that specializes in restaurant SBA loans may have a chargeoff rate 5–10% lower than the industry average because they know how to underwrite restaurants and work with operators to prevent defaults. A national bank that does one restaurant deal a year may have a higher chargeoff rate despite more resources. PeerSense tracks lender performance by industry — explore lender-level data on our <Link to="/sba-lenders" className="text-teal-700 hover:text-teal-700 font-medium underline">SBA Lenders</Link> page.
5How Loan Size Affects Default Rates
The PeerSense data shows a clear inverse relationship between loan size and chargeoff rate. Larger SBA loans default at lower rates than smaller loans — not because larger businesses are inherently better, but because the borrower profile required to qualify for a larger loan is inherently stronger.
| Loan Size | Chargeoff Rate | Typical Borrower Profile |
|---|---|---|
| Under $150K | 20–30% | First-time buyers, startups, limited collateral |
| $150K – $350K | 16–22% | Small business acquisitions, some operator experience |
| $350K – $1M | 12–18% | Experienced operators, established businesses, real collateral |
| $1M – $2M | 10–15% | Strong borrowers, larger businesses, full collateral coverage |
| $2M – $5M | 8–13% | Sophisticated borrowers, high net worth, multiple businesses |
The practical takeaway: if you are borrowing $500K+ through an SBA program, you are in a lower-risk cohort than the overall SBA average suggests. The 15–20% headline number is heavily weighted by smaller loans with weaker borrower profiles. Your deal's risk is better assessed by looking at the chargeoff rate for your specific industry, loan size range, and borrower profile — not the SBA-wide average.
6Using Default Rate Data to Choose the Right Lender
SBA lenders are not interchangeable. Each lender has different chargeoff rates by industry, different specializations, and different risk appetites. The PeerSense database tracks lender-level performance across all 899 SBA lenders in our network, allowing us to match borrowers with lenders who have the best track record in their specific industry.
Why does lender specialization matter? Because a lender who understands your industry is more likely to (1) approve your loan in the first place, (2) structure the terms to match your cash flow cycle, and (3) work with you if you hit a rough patch rather than immediately calling the SBA guarantee. That last point is critical — many SBA loan "defaults" are resolved through workout arrangements with the lender before reaching chargeoff. Lenders who specialize in your industry are better equipped to manage those situations.
Explore lender performance data — including chargeoff rates, industry specializations, average loan sizes, and geographic coverage — on our SBA Lenders page. You can filter by industry, state, and loan size to find lenders who specialize in deals like yours.
7Tell Us About Your Deal
SBA default rate data is most useful when it informs your lender selection and deal structure — not when it scares you away from a viable opportunity. The 2.1 million loans in the PeerSense database show that borrower quality, industry selection, and lender match are the three factors that most influence loan performance. Get all three right, and your odds are dramatically better than the headline averages suggest.
Next Step
Book a call with PeerSense and tell us about your deal. We will pull the chargeoff data for your specific industry and loan size, identify the lenders with the best performance in your sector, and structure the deal to maximize your approval odds. The data is on your side — let us show you how to use it.
The Bottom Line
SBA loan default rates are real — but the headline number is misleading without industry context. Accommodation and food services charge off at 23–28%. Healthcare charges off at 8–12%. Professional services sit at 10–14%. The spread is enormous, and it is driven by industry economics — not by borrower intelligence or lender quality. For borrowers, the most actionable insight is this: choose your industry carefully (the data is public), match with a lender who specializes in that industry (PeerSense tracks this across 899 lenders), and structure the deal to compensate for industry risk (more equity in higher-risk industries, stronger working capital reserves, experienced operators). The borrowers who perform best are not the ones in the lowest-risk industries — they are the ones who understand their industry's risk profile and structure accordingly.