Most franchise buyers spend their due diligence energy on Item 19 earnings claims and Item 7 initial investment estimates. That makes sense—those items answer the question “Can I make money?” But buried deeper in the Franchise Disclosure Document are two items that answer an equally important question: “What am I actually required to do, and how will I pay for it?”
FDD Item 9 is a cross-reference table that lists every single obligation you'll owe the franchisor. Item 10 discloses any financing the franchisor offers or arranges. Together, these items define the boundaries of your independence as a business owner and the financial terms that come with the brand. Underestimating them is one of the most common mistakes franchise buyers make.
What Is FDD Item 9? Franchisee's Obligations
Item 9 is structured as a table with two columns. The left column lists obligation categories—there are typically 20 to 25 standard categories defined by the FTC Franchise Rule. The right column cross-references the specific sections of the franchise agreement and operating manual where each obligation is described in detail.
Think of Item 9 as a table of contents for your commitments. It won't give you the full details of each obligation, but it tells you exactly where to look. The categories cover everything from site selection and pre-opening requirements to ongoing operational standards, advertising contributions, and post-termination non-compete restrictions.
The reason Item 9 matters so much is that franchise agreements are long, dense contracts. Without this cross-reference table, you might miss obligations scattered across dozens of pages. Item 9 is your checklist for finding every commitment you're agreeing to.
Common Item 9 Obligation Categories
| Obligation Category | What It Covers | Red Flags to Watch |
|---|---|---|
| Site Selection & Acquisition | Location approval, lease requirements, build-out standards | Franchisor must approve but franchisee bears all costs and risk of delays |
| Pre-Opening Purchases | Equipment, inventory, signage, technology systems | Sole-source suppliers with no price caps; costs higher than Item 7 estimates |
| Initial & Ongoing Training | Duration, location, who pays travel/lodging, continuing education | Mandatory annual training at franchisee's expense with no cap on frequency |
| Opening Deadline | Timeline to open after signing the franchise agreement | Unreasonably short deadlines with termination penalties for missing them |
| Ongoing Product Purchases | Required products, approved suppliers, minimum order volumes | Franchisor earns revenue from supplier rebates without disclosure |
| Advertising & Marketing Fund | National fund contributions, local advertising minimums, co-op requirements | Marketing fund can increase without franchisee vote; no audit rights |
| Computer Systems & Technology | Required POS, software subscriptions, data reporting, upgrade schedules | Unlimited upgrade requirements at franchisee's sole expense |
| Operating Standards & Manuals | Hours, staffing, quality standards, customer service requirements | Franchisor can modify standards unilaterally at any time |
| Territory & Territorial Compliance | Exclusive territory scope, performance requirements to maintain exclusivity | Territory protection has sales minimums that are difficult to achieve |
| Insurance Requirements | Types of coverage, minimum limits, approved carriers | Excessive coverage requirements that inflate operating costs |
| Reporting & Recordkeeping | Financial statements, POS data uploads, audit rights | Franchisor has unlimited audit rights at franchisee's expense |
| Renewal & Transfer | Renewal conditions, transfer approval, right of first refusal | Renewal requires signing “then-current” agreement with materially different terms |
| Non-Compete & Post-Termination | In-term and post-term competitive restrictions | Broad geographic and time restrictions that prevent you from working in the industry |
Item 9 Red Flags: What Experienced Buyers Look For
The biggest risk in Item 9 isn't any single obligation—it's the cumulative weight of all of them together. Each obligation is reasonable in isolation. But when you stack mandatory supplier purchases, marketing fund contributions, technology upgrades, training costs, insurance requirements, and reporting obligations on top of your royalties, the total cost of compliance can significantly exceed what you expected from Item 5 fees and Item 7 estimates alone.
🚩 Critical Item 9 Red Flags
- Unilateral modification rights: The franchisor can change the operating manual—and therefore your obligations—at any time without your consent or any cap on cost impact.
- Personal guarantee on all obligations: You personally guarantee not just the financial terms but all operational obligations, exposing personal assets to compliance disputes.
- No caps on technology upgrades: Required system replacements or upgrades at “franchisee's sole expense” with no maximum amount or frequency limit.
- Unrestricted audit rights: The franchisor can audit your books at any time, and if discrepancies are found, you pay for the audit plus penalties.
- Broad post-termination non-competes: Restrictions that prevent you from operating any similar business within a large geographic radius for two or more years after termination.
When reviewing Item 9, create a spreadsheet listing every obligation, the associated cost (known or estimated), and whether the franchisor can change it unilaterally. This gives you a realistic picture of your total cost of compliance beyond just the fees disclosed in other FDD items.
What Is FDD Item 10? Financing Arrangements
FDD Item 10 discloses any financing that the franchisor offers directly, guarantees, or arranges through affiliated or third-party lenders. This includes financing for the franchise fee, equipment, inventory, real estate, or any other component of the initial investment.
For each financing arrangement, Item 10 must disclose the interest rate (or range), loan term, collateral requirements, default provisions, prepayment penalties, and whether the franchisor has the right to assign or sell your promissory note to a third party. If the franchisor receives any consideration from a lender for referring you, that must also be disclosed.
Many franchise systems don't offer direct financing and Item 10 simply says “We do not offer financing.” But when financing is offered, the terms deserve careful scrutiny because franchisor-arranged financing often comes with strings that independent lending does not.
What Item 10 Must Disclose
Loan Terms
- • Interest rate or rate range
- • Loan duration and amortization
- • Down payment requirements
- • Monthly payment estimates
Security & Collateral
- • What assets secure the loan
- • Personal guarantee requirements
- • Cross-collateralization provisions
- • UCC filing details
Default Provisions
- • Events that trigger default
- • Cure periods (or lack thereof)
- • Acceleration clauses
- • Cross-default with franchise agreement
Assignment & Transfer
- • Right to sell your note
- • Notice requirements
- • Prepayment penalties
- • Referral fees from lenders
Item 10 Financing Red Flags
Franchisor-arranged financing can be convenient, but it can also create dangerous leverage. Here are the red flags that experienced franchise buyers and franchise attorneys watch for:
⚠️ Above-Market Interest Rates
Franchisor financing often carries interest rates 2-5 percentage points above what SBA lenders or conventional banks offer. On a $200,000 loan over 10 years, a 3-point rate premium costs you roughly $35,000 in additional interest. Always compare franchisor terms against at least two independent lenders before accepting.
⚠️ Cross-Default Provisions
The most dangerous clause in franchisor financing is cross-default: if you default on your loan, it triggers a default on your franchise agreement (and vice versa). This means a late payment could give the franchisor grounds to terminate your franchise entirely. Independent lenders don't have this power.
⚠️ Note Assignment Without Consent
If the franchisor can sell your promissory note to a third party, you may end up owing money to a lender you didn't choose, who may be less flexible on workouts or modifications. Some notes include waiver of defenses, meaning you can't raise claims against the franchisor as a defense against the new note holder.
⚠️ Affiliated Lender Arrangements
When the franchisor's affiliated entity provides the financing, there's an inherent conflict of interest. The franchisor profits from both your royalties and your interest payments. Check whether the affiliated lender's terms are competitive with market rates and whether the franchisor receives any referral fees or placement commissions.
⚠️ SBA Eligibility Issues
Not all franchise systems are on the SBA Franchise Directory, which means you may not qualify for SBA-backed loans with their favorable terms. If Item 10 doesn't mention SBA eligibility, ask the franchisor directly and verify independently through the SBA's franchise directory. Losing access to SBA rates (typically Prime + 2.25-2.75%) can increase your cost of capital significantly.
How to Evaluate Items 9 and 10 Together
Items 9 and 10 are more connected than most buyers realize. Your obligations under Item 9 drive your ongoing costs, and your financing terms under Item 10 determine how much financial flexibility you have to meet those obligations. Here's a systematic approach:
- Map every obligation to a dollar cost. Go through Item 9's table and assign an estimated annual cost to each obligation category. Training travel, technology fees, marketing contributions, insurance premiums, and required purchases all add up.
- Identify which obligations can change. Flag any obligation where the franchisor can modify requirements unilaterally. These represent uncapped future costs that your financial projections should stress-test.
- Compare financing terms to independent options. If the franchisor offers financing, get competing quotes from SBA-preferred lenders and conventional banks. Calculate the total interest cost difference over the life of the loan.
- Check for cross-default risk. If you use franchisor financing, understand exactly how a loan default interacts with your franchise agreement. This is the single most important risk factor in Item 10.
- Talk to existing franchisees about real costs. Ask current operators how their actual obligation costs compare to what they expected from the FDD. Focus on technology upgrades, marketing fund effectiveness, and any obligations that changed after they signed.
For a complete due diligence framework that covers all 23 FDD items, see our Franchise Due Diligence Checklist.
10 Questions to Ask the Franchisor About Items 9 & 10
- What obligations have changed in the last three years, and what drove those changes?
- What is the annual cost of mandatory technology upgrades for a typical franchisee?
- How is the marketing fund audited, and can franchisees see where the money goes?
- Are there minimum sales or performance requirements to maintain territorial exclusivity?
- What happens if I can't meet the opening deadline—is there an extension process?
- Do you offer financing, and if so, how do your rates compare to SBA lending?
- If I use your financing, does a loan default trigger a franchise agreement default?
- Can you sell or assign my promissory note without my consent?
- Is the franchise system currently on the SBA Franchise Directory?
- What percentage of franchisees use franchisor financing versus independent lenders?
Frequently Asked Questions
What does FDD Item 9 disclose?
FDD Item 9 provides a cross-reference table listing every obligation a franchisee must fulfill under the franchise agreement, including site selection, pre-opening requirements, training, ongoing product and service purchases, maintenance standards, insurance, advertising, computer systems, and compliance with operating manuals. Each obligation references the specific section of the franchise agreement where the full details appear.
What does FDD Item 10 disclose about franchise financing?
FDD Item 10 describes any financing arrangements the franchisor offers directly or through affiliated lenders, including loan terms, interest rates, collateral requirements, default provisions, and whether the franchisor can sell or assign your promissory note to a third party. If the franchisor does not offer financing, Item 10 will state that explicitly.
Why is Item 9's cross-reference table so important?
The Item 9 table serves as a roadmap to every obligation buried in the franchise agreement and operating manual. Without it, you might miss critical requirements like mandatory technology upgrades, renovation schedules, or non-compete clauses. It's the fastest way to identify the full scope of what you're committing to and spot obligations that could create unexpected costs or operational restrictions.
Can the franchisor change my obligations after I sign?
Yes, in many franchise systems the franchisor reserves the right to modify the operating manual unilaterally, which can add new obligations or change existing ones. Item 9 and the franchise agreement should disclose whether the franchisor can modify standards, require technology upgrades, mandate new training, or increase marketing fund contributions. Look for language around “sole discretion” modifications and whether there are any caps or notice requirements.
Should I use the franchisor's financing or find my own lender?
Compare franchisor-arranged financing against independent SBA lenders and conventional banks. Franchisor financing may be faster and require less documentation, but interest rates can be 2-5 percentage points higher than market rates, and default provisions may give the franchisor additional leverage—including the right to terminate your franchise agreement. Always get at least two independent quotes before committing to franchisor-arranged financing.
What are the biggest red flags in FDD Items 9 and 10?
In Item 9, watch for unlimited unilateral modification rights, vague “comply with all standards” language without specifics, mandatory technology upgrades at franchisee's sole expense, and personal guarantees on every obligation. In Item 10, red flags include above-market interest rates on franchisor loans, cross-default provisions that tie your loan to your franchise agreement, the right to sell your note to third parties without consent, and waiver of legal defenses in the financing documents.
How do Items 9 and 10 relate to other FDD items?
Item 9 connects directly to Item 5 (initial fees), Item 6 (ongoing fees), Item 7 (estimated initial investment), and Item 8 (supplier restrictions). Item 10 financing terms affect your total cost of entry from Item 7 and may involve fees disclosed in Items 5 and 6. Reading these items together gives you a complete picture of your financial commitments and operational obligations.
The Bottom Line
FDD Items 9 and 10 don't get the attention they deserve. Item 9 tells you the full scope of what you're agreeing to do as a franchisee—obligations that can change after you sign and that collectively determine your real operating costs. Item 10 tells you the financial terms of any franchisor-arranged financing, where cross-default provisions and above-market rates can create unnecessary risk.
The buyers who succeed in franchising are the ones who understand that the franchise fee and royalty rate are just the starting point. The real cost of ownership lives in the obligations of Item 9 and the financing terms of Item 10.
Before you sign any franchise agreement, map every obligation to a dollar cost, compare every financing option against independent lenders, and talk to existing franchisees about what their real compliance costs look like. Your future self will thank you.
Related Resources
FDD Red Flags Guide
The warning signs that experienced buyers never miss.
FDD Item 5: Initial Fees Guide
What the franchise fee really covers and how to evaluate it.
Due Diligence Checklist
Complete checklist for evaluating any franchise opportunity.
FDD Item 8: Supplier Restrictions
What you must buy and who you must buy it from.