# Item 10, financing There is a particular silence in most restaurant franchise disclosures, and it sits in Item 10. The Item asks whether the franchisor, or anyone acting for it, offers financing directly or indirectly — for the initial fee, for equipment, for the build-out, for opening inventory, or for anything else — and requires the terms to be set out if the answer is yes. In a great many filings the answer is a short negative, and you learn something important from it: the entire capital structure of this deal is yours to arrange. ## What the Item has to describe when there is something to describe Where financing is offered, the disclosure is detailed rather than gestural. It covers what is financed, the amount or the range, the term, the rate or how the rate is determined, the number and timing of payments, any security or collateral required, and the consequences of default. It reaches leases and guarantees as well as loans: a franchisor that leases equipment to franchisees, or that guarantees a franchisee's premises lease, is offering financing in the sense this Item means. Three clauses deserve particular attention because they change the buyer's position rather than the price. The first is whether the franchisee waives defenses — that is, whether the borrower gives up the right to raise disputes about the franchise relationship as a reason not to pay the note. The second is whether the franchisor may sell or assign the paper to a third party, because a note in the hands of an unrelated purchaser is collected by someone with no interest in the store's success. The third is whether the franchisor or an affiliate receives any consideration for placing financing with a lender, which turns a friendly introduction into a transaction with a fee attached to it. None of those is improper. All three are the kind of term a buyer should know about before the note is on the table rather than after. ## A referral is not an offer The most common misreading is treating a preferred-lender relationship as franchisor financing. Systems frequently maintain relationships with lenders who know the brand's build-out costs and paperwork, and a warm introduction genuinely saves weeks. But the lender underwrites the borrower, the project and the market on its own criteria, and the franchisor is not on the hook for the result. If Item 10 discloses no financing, the referral has not changed that. Membership of a public directory that lenders consult when they assess whether a franchise agreement is compatible with a guarantee program is likewise not an Item 10 disclosure and not an endorsement of the unit's economics. The [SBA 7(a) program](https://www.sba.gov/funding-programs/loans/7a-loans) is a guarantee on a loan made by a participating lender, arranged separately from anything in the FDD; this publication's [financing overview](/financing-overview/) covers what it is and, just as importantly, what a consultant should never quote about it. ## Read Item 10 against the size of the hole The value of this Item is proportional to what has to be funded, and that figure sits in Item 7. The disclosed totals for a single outlet here run from Shah's $197,000–$405,000 (FDD issued 10 April 2024) and Crave's $301,500–$1,192,500 (May 2024 comparative study) through Mad for Chicken's $321,125–$691,700 (FDD issued 12 March 2025), Döner Haus's $359,500–$586,000 (2026 Franchise Disclosure Document) and Great Greek's $582,014–$1,088,560 (FDD issued 17 August 2023), to Doner Shack's $498,000–$1,007,000 (FDD issued 29 April 2025), Pepper Lunch's $609,200–$1,471,500 in the same comparative study and GDK's $690,500–$1,123,000 per outlet (FDD issued 3 September 2024). GDK's figure is the one that makes the point about scale. That range is per outlet inside a five-outlet minimum commitment, so the financing question is not about a restaurant, it is about a development programme with dates attached. An Item 10 that offers nothing, against a schedule of that kind, means the buyer needs a capital plan that survives five construction projects and their opening periods — the disclosed initial-period funds for one GDK outlet are $15,000–$20,000 over three months, which is a modest cushion per store and a very different aggregate across a schedule. Where a filing does offer financing, run the same comparison in reverse: what proportion of the Item 7 total does the offer actually reach? Financing an equipment package inside a table dominated by leasehold improvements — Great Greek's $250,000–$650,000 improvements row against its restaurant package, say — solves a slice of the problem and leaves the rest untouched.
Before you leave Item 10 - Record whether financing is offered directly, indirectly, or not at all. - For each offer: what is financed, term, rate basis, security, and default consequences. - Look specifically for waiver of defenses, assignment of the note, and consideration for placing financing. - Separate franchisor financing from preferred-lender referrals in your notes. - Compare what is financed against the Item 7 total, not against the initial fee. - If a development schedule applies, underwrite the schedule rather than the first store.
## What guarantees do to the picture Whether or not the franchisor lends anything, personal guarantees usually appear somewhere in the transaction: in the franchise agreement, in a premises lease, in equipment finance, and in a bank's loan documents. They are listed among the contracts in Item 22 and summarised in Item 17's transfer and termination rows, and their most consequential feature is how long they survive. A guarantee that continues after a transfer means the exit contemplated in Item 17 does not fully release the seller. That is a question for counsel and for the buyer's family, not for a sales conversation. Item 21 is the mirror image. If the franchisor is extending credit, leasing equipment or guaranteeing leases, its own balance sheet is carrying that exposure, and the audited statements are where a reader can see whether the entity making those promises is capitalised to keep them. ## Questions worth asking Ask whether any financing is offered to some buyers and not others, and on what basis. Ask which lenders have closed loans on this brand's projects in the last year and in which states. Ask what proportion of recent openings used equipment leasing, and whether the franchisor was party to any of it. Then ask franchisees from the Item 20 list how their project was actually funded, how long approval took, and whether the disclosed initial-period funds turned out to be enough — that last answer is the one that no Item in the document can give you. ## Related reading - [Financing overview](/financing-overview/) — the public program, the equity injection, and the rate nobody should quote - [Item 7, estimated initial investment](/item-7-initial-investment/) — the size of what has to be funded - [Item 21 financials](/item-21-financials/) — whether the lender in Item 10 can afford to be one - [Item 22, contracts](/item-22-contracts/) — where the note and the guarantee are attached - [Qualification](/qualification/) — net worth and liquidity as separate filters --- HTML: https://qsrfieldguide.com/item-10-financing/