SBA rules · SOP 50 10 8.1
Does SBA require a business valuation to buy a business?
Yes, the SBA requires an independent business valuation from a Qualified Source for 7(a) changes of ownership unless the Business Purchase Price is $350,000 or less without a close relationship, or an ESOP exception applies.
Quoted from SBA SOP 50 10 8.1Every quote checked word for word
In detail
- General 7(a) requirement: For 7(a) change of ownership transactions, the valuation must be requested by and prepared for the lender by an independent Qualified Source accredited by a recognized organization (such as ASA, CBA, ABV, CVA, or BCA), and cannot be prepared for the applicant or seller.
- $350,000 or less threshold: If the Business Purchase Price (purchase price excluding owner-occupied commercial real estate) is $350,000 or less, the lender may perform its own internal valuation unless there is a close relationship between the buyer and seller.
- Special Purpose Properties: When acquiring a Special Purpose Property, the valuation must allocate values among land, building, equipment, and intangibles, and any going concern appraisal must be performed by a Certified General Real Property Appraiser with at least four going concern appraisals of equivalent properties in the prior 36 months.
- ESOP exception: An independent business valuation is not required for loans involving eligible ESOP transactions; the lender may instead rely on the valuation obtained by the ESOP in accordance with ERISA specifications.
- 504 program: The 504 program finances only eligible long-term fixed assets in a change of ownership and does not finance intangible assets, meaning it requires fixed asset appraisals rather than business valuations.
The source
What the SOP says
“A business valuation assists the buyer in making a determination that the seller’s asking price is supported by an independent Qualified Source:
“For the individual performing the business valuation to identify the scope of work appropriately, 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.
“If the Business Purchase Price is $350,000 or less, the Lender may perform its own valuation of the business being sold, unless there is a close relationship between the buyer and seller.
“The Certified General Real Property Appraiser must have completed no less than four going concern appraisals of equivalent special use property as the property being appraised, within the last 36 months, as identified in the qualifications portion of the Appraisal Report.
“Regardless of the requirements stated throughout this SOP for business valuations, an independent business valuation is not required when the Lender is making a loan involving ESOPs for the types of loans discussed in this Paragraph B. In lieu of an independent business valuation, the Lender may use the valuation obtained by the ESOP that was made in accordance with ERISA specifications.
“The 504 Project finances only the costs associated with eligible long-term fixed assets; the acquisition of any other assets such as receivables or goodwill is not an eligible use of 504 loan proceeds or Third Party Loan proceeds and must be financed by other means, which may include a 7(a) loan;
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This page quotes the SBA's Standard Operating Procedure 50 10 8.1. Lenders can ask for more than the SBA minimum. It is general information, not a loan approval or legal advice.