A Franchise Disclosure Document (FDD) is the legally mandated disclosure a franchisor must provide to a prospective franchisee at least 14 days before signing, covering fees, obligations, litigation history, and, in Item 19, financial performance representations.
Worked example
| Item | What it tells you |
|---|---|
| Item 5 & 6 | Initial and ongoing fees, royalties |
| Item 7 | Total estimated investment range |
| Item 19 | Financial performance (avg unit revenue) |
| Item 20 | Outlet counts, openings, and closures |
| Item 3 | Litigation history |
Item 19's unit economics and Item 7's investment range are the inputs an SBA lender uses to size a franchise acquisition loan.
Why it matters when buying a business
For franchise deals the FDD is your primary due-diligence source, read Item 20's closure counts and call current franchisees before you rely on Item 19. Watch for a franchisor non-compete and territory limits, and confirm the brand is on the SBA Franchise Directory so it qualifies for financing.
