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Getting a Business Valuation for SBA Loan Purposes

Many buyers of small businesses seek financing through Small Business Administration (SBA) loans. To ensure these loans meet SBA requirements, as presented in the SBA's Standard Operating Procedure (SOP), an independent business valuation by a qualified source is required in the following circumstances:

  • The amount being financed, minus the appraised value of real estate and equipment, is more than $250,000, or

  • A close relationship exists between the buyer and seller, such as between business partners or family members, or

  • The lender's internal policies and procedures require an independent business valuation from a qualified source

Independent Business Valuation

This SBA requirement is intended to reduce or eliminate the possibility that the valuation is performed by someone with an interest in the transaction's outcome, such as the seller or buyer representatives.

Qualified Source

The second important requirement is the valuation must be performed by a qualified source. A "qualified source" is an individual who regularly receives compensation for business valuations and is accredited by one of the following recognized organizations:

  • Accredited Senior Appraiser (ASA) accredited through the American Society of Appraisers

  • Certified Business Appraiser (CBA) accredited through the Institute of Business Appraisers

  • Accredited in Business Valuation (ABV) accredited through the American Institute of Certified Public Accountants

  • Certified Valuation Analyst (CVA) accredited through the National Association of Certified Valuation Analysts

  • Business Certified Appraiser (BCA) accredited through the International Society of Business Appraisers

Additional Requirements

Some additional requirements contained in the SBA's SOP include:

  • The business valuation must be requested by and prepared for the lender. The lender may not use a business valuation prepared for the applicant or the seller.

  • The scope of work should identify whether the transaction is an asset purchase or stock purchase and be specific enough for the valuation analyst to know what’s included in the sale (including any assumed debt).

  • The business valuation must include the valuation analyst’s opinion of value, qualifications and signature certifying to the information contained in the appraisal.

  • The business valuation must be conducted in compliance with the current Uniform Standards of Professional Appraisal Practice (USPAP) guidelines. USPAP is the generally recognized ethical and performance standards for the appraisal profession in the Unites States.

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Disclaimer: The information contained in this article is for general guidance only. The information presented should not be acted upon without the advice and guidance of a professional tax, legal, or financial adviser who is familiar with all the relevant facts.

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