SBA Business Valuation Requirements Explained

“If the amount being financed (including any 7(a), 504, seller, or other financing) minus the appraised value of real estate and/or equipment is greater than $250,000 or if there is a close relationship between the buyer and seller (for example, transactions between existing owners or family members), the Lender must obtain an independent business valuation from a Qualified Source.”
— SBA SOP 50 10 7.1

For more than a decade the SBA has required third party business valuations for most SBA 7(a) loans used for acquiring a small business. The SBA SOP outlines lending requirements across over 400 pages. In this article, we explain the basic requirements related to SBA business valuations.

Q: What loans require a business valuation?
A: Most SBA 7(a) loans funding more than $250,000 for a small business acquisition will require a third-party business valuation. However, many lenders will still require the borrower to purchase a business valuation for smaller acquisitions.

Q: Who can prepare an SBA business valuation?
A: The business valuation must be prepared by a "qualified source" on behalf of the bank. The bank may not use a business valuation prepared for the seller, business broker, or any other party. The SBA SOP defines a Qualified Source as an appraiser with credentials such as Certified Valuation Analyst (CVA) from the National Association of Certified Valuators and Analysts (NACVA). Every Concluded report is prepared by a Qualified Source, with our valuation experts having nearly a decade of experience preparing valuations for SBA lenders.

Q: How much does an SBA business valuation cost?
A: The cost of the business valuation depends on the valuation firm that the SBA lender works with. Concluded offers market-leading pricing of $1,800. Most appraisers charge between $2,500 and $3,000. In some cases, SBA lenders will allow the borrower to select an appraiser from a set list of firms approved by the lender.

Q: What information is needed to prepare an SBA valuation?
A: The appraiser will need to understand the business's financials, including historical tax returns, the deal terms via a purchase agreement or letter of intent, and qualitative factors regarding the industry, management team, and business outlook.

Q: What factors should be considered when choosing a business appraiser?
A: Expertise, price, and turn time are typically the most important factors. It is best to choose an appraiser with experience in the target industry. The valuation fee should be reasonable, and the report should be delivered promptly to avoid delaying the loan process. Concluded pairs every business with an expert appraiser who has experience in that industry. Our $1,800 pricing and 3-business-day turn time make Concluded the preferred valuation partner for many top SBA lenders.

Q: What happens if the conclusion of value comes in below the purchase price?
A: The SBA guarantee cannot exceed the conclusion of value determined by the appraiser. If the appraised value is lower than the purchase price, the buyer and seller may renegotiate, the lender may offer non-SBA bridge financing, or the deal may fall through. It is important for buyers to be cautious when a purchase price exceeds the fair market value.