SBA Loans

An independent business appraisal by a qualified appraiser is required for certain SBA loan packages. The primary objective of such a report is to determine if the business can feasibly repay the proposed loan amount. The more accurate the appraisal, the more both parties benefit: the business owner(s) avoid assuming more debt than they can afford, and the SBA lender gains reasonable assurance of the loan being repaid.

Hypothetical scenarios that require a qualified appraiser:

A company is in the last stages of an acquisition and one of the final steps is for the SBA lender to obtain an independent valuation report from a qualified appraiser. The valuation report will assist the lender in determining whether or not the business can justify the proposed loan package.

A business owner is seeking a SBA loan in order to make a capital purchase for his manufacturing company. A business valuation would be needed to examine the likely effects of the capital purchase and to determine if the business would be able to support the loan.

Special considerations for SBA loan valuation purposes:

The purpose of an appraisal in a financing situation is to help the lender determine whether the business can support repayment of the requested loan.  If a business appraisal indicates the subject company is financially healthy and will likely remain so, a loan is more likely to be approved.  Lenders typically want a comprehensive view of the company and a realistic determination regarding its ability to repay the requested debt.

Per the SBA SOP 50 10 5(a), lenders may perform their own appraisals if the requested loan amount is under $250,000.  However, when the loan amount is higher or if there is a close relationship between buyer and seller, the lender must obtain an independent business valuation by a qualified business appraiser as described in the SBA SOP. Click here to view details on  SBA Standard Operating Procedures.

It is important to note that these types of valuations are typically initiated by the SBA lender rather than by the owner of the business. This avoids even the appearance of a conflict of interest as well as satisfies the restrictions to which lenders must adhere.

Business valuations for financing situations are often time-sensitive, as offers to purchase/sell a business typically have a brief shelf-life. As such, cooperation between the appraiser, the lender and the business owner is critical to completing the valuation on time.