Franchise Owners: A National and Metro Look
Roughly 5% of U.S. businesses with employees are franchises, according to LendingTree analysis of U.S. Census Bureau data. Below, we break down franchise ownership by several national demographics, including race, gender and industry. We also highlight the metros with the highest and lowest rates of franchise ownership.
Between the challenges that come with owning a business — like financing and finding the time to manage everything from logistics to employee benefits — and franchise-specific obstacles — like franchise taxes and loan down payments — getting into the franchise business can be difficult. Here’s what you should know about the current state of franchise owners in the U.S.
- 4.9% of U.S. businesses with employees are franchises. According to U.S. Census Bureau data, 130,492 businesses are partially or wholly owned as a franchise out of 2,686,480 reporting businesses.
- Asian-owned franchises are most common. 9.9% of Asian-owned businesses are franchises, versus 5.5% of Black-owned businesses and 4.3% of white-owned businesses.
- Accommodation and food services is the most heavily franchise-dominated industry. 19.7% of businesses in this industry are partially or wholly owned as franchises. Educational services is the second most common industry to see a franchise, at 12.4%.
- El Paso, Texas, has the highest rate of franchise ownership in the U.S. 11.2% of businesses in El Paso are franchises — more than double the national average. El Paso is followed by San Antonio (9.5%) and Charleston, S.C. (8.8%).
- Metros with higher costs of living tend to have the lowest rates of franchise ownership. San Diego and New York, two of the most expensive places in the U.S., have the lowest rates of franchise ownership at 3.2% each. Miami and Los Angeles are just ahead at 3.3% each.
Franchise ownership in the U.S.
Almost 5% of U.S. businesses with employees are franchises. According to the U.S. Census Bureau, 130,492 businesses are partially or wholly owned as a franchise out of 2,686,480 reporting businesses.
Contracts can last as long as 20 years. While renewals may be optional, they aren’t typically automatic. If the franchiser doesn’t comply with the contract, it can be terminated. In that case, it could mean losing the entire investment.
Becoming a franchise owner can be a lucrative investment, but it’s like any business because there are elements of risk. Here’s how franchise ownership breaks down across several demographics.
Nearly 10% of Asian-owned businesses are franchises — the most of any race examined.
Asian Americans are the fastest-growing racial or ethnic group in the U.S., with its population up 81% (and 8.4 million people) between 2000 and 2019. This influx provides opportunities for more people of Asian heritage to become franchise owners. Potential labor market discrimination against native-born Asian Americans could also lead more to create franchise opportunities for themselves.
Franchise ownership (by race)
|Race||% of businesses that are franchises|
|Native Hawaiian and other Pacific Islander||5.6%|
|Black or African American||5.5%|
|American Indian and Alaska Native||3.1%|
Source: LendingTree analysis of U.S. Census Bureau data
White-owned franchises are one of the least common by percentage, but they make up the largest number of franchises of any racial or ethnic group by a wide margin. Considering white people make up 61.6% of the U.S. population, this makes sense.
And white Americans don’t face the same kind of discrimination as people of color. Franchise ownership may be seen as less desirable among this population, especially since it involves risks that traditional employment typically avoids.
There’s almost no difference in franchise ownership for men (4.7%) and women (4.2%). Women-owned businesses are on the rise in the U.S., though they only make up about a fifth of all firms.
Franchise ownership (by gender)
|Gender||% of businesses that are franchises|
Source: LendingTree analysis of U.S. Census Bureau data
Accommodation and food services is the most heavily franchise-dominated industry, with 19.7% of those businesses being partially or wholly owned as franchises. Some examples of these kinds of franchises include major fast-food brands like:
From an industry standpoint, franchises like hotels and restaurants are recognized as having a high rate of return, and they tend to offer an opportunity to franchise with a company that has a long, proven track record.
For example, accommodation and food services was one of the top five industries that contributed to gross domestic product growth in 2021. In general, this industry also tends to be lucrative for both parties.
Educational services is the second most common industry to see franchises, at 12.4%. This could include establishments like Sylvan Learning, Kumon, Lightbridge Academy and Goddard School. Like the first-ranked industry, it’s focused on service-oriented businesses. Despite a steep decline in employment in this industry at the onset of the pandemic, it’s since recovered and seems poised to resume its high growth trajectory.
Franchise ownership (by industry)
|Industry||% of businesses that are franchises|
|Accommodation and food services||19.7%|
|Management of companies and enterprises||11.3%|
|Arts, entertainment and recreation||8.5%|
|Administrative and support and waste management and remediation services||5.7%|
|Other services (except public administration)||5.5%|
|Finance and insurance||4.2%|
|Mining, quarrying, and oil and gas extraction||4.0%|
|Real estate and rental and leasing||3.4%|
|Transportation and warehousing||3.2%|
|Health care and social assistance||2.2%|
|Agriculture, forestry, fishing and hunting||1.7%|
|Professional, scientific and technical services||1.2%|
Source: LendingTree analysis of U.S. Census Bureau data
El Paso, Texas, has the highest rate of franchise ownership in the U.S.
In El Paso, Texas, 11.2% of businesses are franchises — the highest across the U.S. among the metros we analyzed. That’s more than double the national average.
San Antonio (9.5%) follows El Paso. Texas has a solid labor force, and earnings are on par with the national average.
“Both El Paso and San Antonio have lower costs of living than many other big American metros, as do many others at the top of the list,” says Matt Schulz, LendingTree chief credit analyst. “That’s far from the only factor at play here, but it could indicate that franchises might be more appealing opportunities to businesspeople in less expensive parts of the country.”
Coming in third place is Charleston, S.C. (8.8%). Like the other top-ranking metros on this list, Charleston also has a cost of living below the U.S. average.
High cost-of-living metros have the lowest rates of franchise ownership
San Diego and New York, two of the most expensive places in the U.S., have the lowest rates of franchise ownership at 3.2% each. Miami and Los Angeles are just ahead at 3.3% each, and both share that high cost of living.
At the same time, many of these metros have median household incomes that aren’t far different from the national median (though New York metro residents make over a third more than that median). In fact, Miami has a median household income below the national median. With less money to go around because of the higher cost of living, it can be difficult to come up with the cash that’s necessary to finance a franchise in the first place.
Another key factor seems to be regional: Texas and the southeastern U.S. dominate the top 10, while East Coast and West Coast cities make up a good portion of the bottom.
Franchise ownership (by metro)
|Rank||Metro||Number of franchises||% of businesses that are franchises|
|1||El Paso, TX||541||11.2%|
|2||San Antonio, TX||1,505||9.5%|
|5||Little Rock, AR||557||8.3%|
|7||Virginia Beach, VA||1,015||8.0%|
|9||Colorado Springs, CO||615||7.6%|
|11||Oklahoma City, OK||1,024||7.4%|
|21||Kansas City, MO||1,150||5.8%|
|30||Las Vegas, NV||762||4.9%|
|34||San Jose, CA||860||4.5%|
|44||San Francisco, CA||1,710||3.5%|
|44||St. Louis, MO||906||3.5%|
|47||Los Angeles, CA||4,758||3.3%|
|49||New York, NY||5,964||3.2%|
|49||San Diego, CA||1,089||3.2%|
Source: LendingTree analysis of U.S. Census Bureau data. Note: Only the 50 metros with the most franchises were considered.
4 things to know about becoming a franchise owner
Becoming a franchise owner can be an exciting step, but it’s not one to be taken lightly. It requires big investments of time, money and energy — with no guarantee of success.
Here are a few things you should know about buying a franchise:
No. 1: Requirements may vary
Franchises can have steep requirements for potential franchisees, varying by company.
For example, companies often require you to have a minimum net worth. They may also require a minimum personal credit score, previous industry experience and other qualifications that can end someone’s dreams of buying a franchise in a big hurry if they’re not met.
No. 2: The down payment
“You shouldn’t expect to finance the whole thing,” Schulz says.
Some companies require a down payment — often referenced by franchisers as an upfront fee — from non-borrowed money. For example, McDonald’s requires a down payment of 40% of the total cost of a new restaurant or 25% of the total cost of an existing restaurant.
This money must come from non-borrowed personal resources, such as cash on hand, bonds or securities. Depending on the requirements, this can be a huge hurdle for people looking to get into franchising. For example, according to McDonald’s, opening a franchise will typically require at least $500,000 in non-borrowed money.
No. 3: Financing options
Beyond the down payment, you may want to finance the remaining costs of becoming a franchise owner. Some options include traditional bank loans, Small Business Administration (SBA) loans and business lines of credit.
“One of the advantages of buying a franchise is that the name, track record and reputation of the franchise might make it a little easier to secure that initial financing,” Schulz says. “Banks like to minimize their risk, and opening a new location of a well-known, long-established franchise may look less risky than starting a brand new business from scratch.”
No. 4: Franchise taxes
Once you open a franchise, you may have to pay a franchise tax, depending on where you live. This isn’t based on sales, however — it’s simply a tax you’d pay in exchange for running a franchise in the state.
As of a 2019 LendingTree compilation, 18 states and the District of Columbia had a franchise tax or something similar. You’ll want to look into those guidelines in your state when gauging if franchise ownership is a viable option for you.
LendingTree researchers analyzed the U.S. Census Bureau 2019 Annual Business Survey.
Specifically, researchers estimated the franchise ownership rate in the U.S. and broke it down by race, gender and industry. We also examined franchise ownership rates across the 50 metros with the most franchises.
Responses within this study are based on all or part of a business being operated as a franchise.