The sub shops also dominate the nine-county Dayton region in numbers of SBA loans, but the disparity is even more stark. While Subway franchises took out more than twice as many 7(a) loans as Quiznos (35 to 16), only one Subway loan (2.9 percent) failed and was charged off compared to six (37.5 percent) of the Quiznos loans.
Nationwide, the 50 franchises that cost the SBA the most totaled more than $411 million in discharged loans.
Corporate franchisors such as Quiznos and Subway contract with individual owners to operate the business, but some corporations take a bigger share of the profits than others.
Quiznos' cut from its operators makes it harder for them to be profitable, said Robert Purvin, chief executive officer for the American Association of Franchises and Dealers.
"My bet is lurking behind every failure there is price gouging to the franchisee," said Purvin. "We've been after SBA for years to make no loans to franchisors that are bad players."
He said the SBA is essentially subsidizing these big corporate franchisors because the loan money is often used to pay the franchise fees, royalties and sometimes payments on leases controlled by the franchisor.
Cold Stone's parent company, Kahala Franchising LLC, did not respond to requests for comment. Quiznos spokeswoman Elizabeth Sapp declined to comment directly on Purvin's remarks. But she said the company is now under new management.
"For a time, Quiznos grew rapidly and while there are many success stories, the brand has had more closures over the past few years than we would like," Sapp said. "There are many factors that may have led to defaults -- including a sharp increase in competition within our segment and decline in our national economy."
The SBA Office of Inspector General identified multiple problems at the agency in its 2012 and 2013 reports. According to the reports, the SBA:
-- Vastly understated the rate at which it made improper payments on 7(a) loan approvals and purchase of defaulted loans;
-- Made $869 million in "inappropriate or unsupported loan approvals" under the 2009 American Recovery and Reinvestment Act, otherwise known as the stimulus program; and
-- Improperly paid on loan guarantees despite lender errors that didn't meet SBA requirements.
The OIG recommended the agency strengthen oversight of lenders, reduce financial losses from loan agent fraud by improving tracking and enforcement, and improve efforts to recover improper payments.
Hulit said the agency has implemented quality assurance programs, improved training and is working with the OIG to implement the recommendations for improvements.
Critics say the defaults and other problems show the SBA and lenders are not good stewards of the program. Some argue that the government should not be in the business of backing loans to small businesses and subsidizing lenders.
"Many small business owners see this as an unnecessary program of government intrusion, of picking winners and losers," said Roger Geiger, Ohio chapter executive director of the National Federation of Independent Business. "They most certainly wonder how equitable it is when it's their tax dollars being used to fund what could potentially be a competing business."
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