SBA-Compliant Business Valuations: What Every Lender Needs to Know

At Concluded, we specialize in SBA business valuations and bring nearly a decade of experience working with top SBA lenders. In our SBA valuation reports, we frequently utilize the Discounted Cash Flow (DCF) method to deliver accurate, data-driven insights. Our modern approach combines machine learning and advanced analytics to reflect each business’s unique potential, setting us apart from competitors that often rely on simpler Capitalization of Cash Flows (CCF) methods.

Comparing DCF and CCF: Which Method Delivers Better Results?

Capitalization of Cash Flows (CCF) Method:
CCF is a traditional approach that capitalizes normalized earnings at a fixed rate tied to U.S. GDP growth. While effective for businesses with consistent, predictable earnings, it assumes that future performance mirrors the past. This makes it less suitable for businesses experiencing change or poised for growth.

Discounted Cash Flow (DCF) Method:
DCF projects future cash flows and discounts them to present value using a risk-adjusted discount rate. Compared to CCF, DCF offers:

• Tailored growth projections specific to the business

• Risk-adjusted insight into future cash flows

• A clearer view of operational performance and resale value

DCF is particularly effective for businesses with evolving operations, significant changes, or high growth potential.

Why Concluded Uses the DCF Method for SBA Valuations

Advanced Data Analytics for Accurate Valuations

Concluded leverages machine learning to process hundreds of data points, incorporating:

• FRED (Federal Reserve Economic Data): Macroeconomic indicators

• RMA (Risk Management Association): Industry benchmarks

• BVR (Business Valuation Resources): Market comps and transaction data

• Comparable Companies: Private market multiples and KPIs

This enables us to create detailed, customized forecasts that capture what makes each business unique.

Alignment with Bank Underwriting Standards

We integrate lender cash flow assumptions directly from credit memos into our valuation models. This alignment ensures our reports are not just accurate—but also practical for underwriting and credit approval.

Accounting for Business-Specific Changes

Our DCF models factor in critical developments that static CCF models often miss, such as:

• Launching new products or services

• Entering new markets

• Securing major contracts or customers

DCF enables lenders and stakeholders to assess the impact of these forward-looking initiatives while maintaining SBA compliance (e.g., excluding buyer-specific synergies).

Combining DCF with SDE Exit Multiples

To provide a full picture of value, we use a hybrid model that combines:

• DCF for forecasted earnings

• SDE multiples to estimate terminal value

This approach reduces uncertainty by avoiding perpetual growth assumptions while delivering realistic, market-aligned resale value estimates.

Competitor Limitations: Why CCF Falls Short

CCF-based valuations often fall behind due to:

• Over-reliance on historical financials

• Inability to reflect future growth or operational shifts

• Simplified perpetual growth assumptions that misrepresent value

In contrast, Concluded’s data-rich, forward-looking models deliver valuations that SBA lenders and buyers can trust.

Key Benefits of Using DCF for SBA Valuations

• Enhanced Precision: Tailored to each business’s unique financial profile

• Reduced Risk: Combines realistic forecasts with resale value modeling

• Informed Decision-Making: Backed by robust data and aligned with lender expectations