Walk through the FDD items that matter most in financing, from fees and Item 19 to turnover, and learn what to bring to a lender.
October 30, 2026
A Franchise Disclosure Document, or FDD, is the franchisor's formal disclosure to anyone considering buying a franchise. It is long, dense and easy to skim, yet it holds many of the facts a lender will ask about when you request financing. Reading it with a lender's questions in mind helps you find gaps before an underwriter does.
This guide walks through the FDD items that tend to matter most in a financing conversation: what you will pay, what the franchisor says about performance, how other franchisees have fared, and what obligations you are agreeing to. It is general information, not legal advice, so ask a franchise attorney to review the document. Approval is never automatic and depends on the lender.
Lenders want evidence that a franchise system can plausibly support your loan payments. The FDD is the franchisor's own account of its costs, rules and track record, so it is often a starting point for the lender's review of the brand. Underwriters commonly check whether your startup budget fits the investment the document describes and whether your plan fits what the franchisor requires. Questions they tend to raise include:
SBA's franchise directory is one resource lenders may consult on franchise eligibility. Whether a particular brand is listed, and whether that listing applies to your request, should be verified with the lender and SBA before you commit to a purchase. Program rules come from SBA's Standard Operating Procedure (SOP 50 10) and the lender's own policy; confirm the current version with your lender.
FDDs follow a standard format of numbered Items. You do not need to master all of them before a first lender conversation, but these are the ones borrowers most often bring to the table. Check the numbering in your own document, since each franchisor presents its own.
Lenders rarely read the FDD in isolation. They compare it with your business plan, your startup budget and the unit economics you expect. If Item 7 gives a range and your budget sits well below the low end, be ready to explain why.
For example, suppose a franchisor's Item 19 reports average annual sales of $600,000 for the units it counted, but your projection assumes $750,000 in the first year. A lender may reasonably ask what makes your location outperform the average. Or suppose Item 20 shows 100 outlets at the start of a year and 12 closed or transferred during it. That is 12 percent turnover, and you may be asked to discuss it. These numbers are hypothetical and for illustration only.
Program-level requirements are set out in SBA SOP 50 10 (check the current revision) and then applied through each lender's own credit policy, so expectations differ from lender to lender. Confirm what applies to your request before you rely on any general rule.
1. Read the whole document and mark your questions. Note every Item that affects cost, performance or your obligations, and list what you do not understand.
2. Build your own startup budget. Start from Item 7, then add local costs such as lease build-out, deposits, licenses and working capital. Compare your total with the franchisor's range.
3. Test the performance claims. If Item 19 is included, ask what it covers. Use the Item 20 contact list to call current and former franchisees about real sales, hours, support and surprises.
4. Model your own unit. Build projections from local costs and include the royalties and fees from Item 6. Test a slower ramp-up so you can see how much cushion remains.
5. Get professional review. Ask a franchise attorney to review the FDD and franchise agreement, and ask your accountant to check the numbers before you sign or pay a deposit.
What to bring to a lender: the FDD and its receipt page, the draft franchise agreement, your startup budget, your projections, a completed Personal Financial Statement (SBA Form 413), your resume and any franchisor correspondence. Ask the lender for its current document checklist.
What is Item 19, and why do lenders care about it?
Item 19 is where a franchisor may disclose financial performance figures, such as average sales for existing units. Lenders often look at it because it is one of the few places the franchisor describes results. It is optional, so ask what the figures include and what they leave out.
Does a franchise have to be on the SBA Franchise Directory?
SBA maintains a franchise directory that lenders may use when reviewing a franchise request. How a lender treats a given brand depends on the lender and SBA's current rules, so ask early whether the brand you are considering will work for your financing.
Can I use the Item 7 total as my loan amount?
Not safely. Item 7 is the franchisor's estimated range, and your location, lease and working capital needs may differ. A lender will usually look at your own itemized budget.
Should a lawyer review the FDD?
A franchise attorney can explain obligations that are easy to miss, such as transfer limits and renewal terms. SBA Loan Guy is not a law firm, and this article is general information only.
An FDD is both a legal disclosure and a financial map of the franchise you are considering. Reading it carefully, checking it against your own budget and projections, and talking with current franchisees can help you ask better questions and give a lender a clearer picture. A well-prepared file does not guarantee approval or any particular terms, but it can make the conversation more productive.
Preparing to finance a franchise purchase? Contact SBA Loan Guy to talk through how your FDD review, startup budget and documents fit together before you approach a lender.
This article is general information only. It is not legal, tax, accounting or financial advice. SBA Loan Guy is not a lender and is not affiliated with or endorsed by the U.S. Small Business Administration. Program rules, eligibility and requirements change, so confirm current details with a licensed lender and SBA.gov before you make a decision.
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