SBA rules · SOP 50 10 8.1

When does an SBA loan require an equipment appraisal?

For a 7(a) business acquisition, SBA does not require an equipment appraisal. The business valuation supports the price, and used equipment counts at 50% of book value as collateral unless the lender orders an orderly liquidation appraisal to count it at 80%. An appraisal is required on a 504 loan when used equipment is bought from a non-dealer or refinanced, and on any loan where equipment is valued above book value, such as equipment put in as the buyer's equity.

Quoted from SBA SOP 50 10 8.1Every quote checked word for word

In detail

504 Project used equipment: SBA requires an equipment appraisal when used equipment is part of the 504 Project and is either being refinanced or purchased from someone other than an equipment dealer. The appraisal must be a written document from a qualified person who is independent of the transaction, has conducted an on-site inspection, and is dated no more than 12 months prior to the application date.
7(a) fixed assets valued above book value: For 7(a) loans, if the value assigned to fixed assets exceeds their Net Book Value, the lender must obtain an independent appraisal from a qualified individual who is independent of loan production and has no actual or apparent conflict of interest. An independent appraisal is also required whenever non-cash fixed assets are injected as borrower equity at a valuation greater than Net Book Value.
Orderly liquidation value for 7(a) collateral: In Standard 7(a) loans and 7(a) change of ownership loans, used or existing machinery and equipment may only be valued at up to 80% minus prior liens for the "fully secured" calculation if supported by an Orderly Liquidation Appraisal; otherwise, it is limited to 50% of Net Book Value.
Working Capital CAPLines: If a Working Capital CAPLine facility is secured by fixed assets and the valuation of those fixed assets is greater than Net Book Value, the lender must obtain an independent appraisal from a qualified individual.

The source

What the SOP says

“SBA requires that an equipment appraisal be obtained when used equipment is part of the Project and is either being purchased from someone other than an equipment dealer or being refinanced. The equipment appraisal needs to be a written document from a person that is qualified to provide a valuation, is independent of the transaction, and has performed an on-site inspection of the equipment. The appraisal must be dated no more than twelve months prior to the date of the application.

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > Equipment Appraisal: (lines 3632-3633)✓ Verified

“If the value assigned to fixed assets exceeds their Net Book Value, the Lender must obtain an independent appraisal from a qualified individual to support the higher value. The appraiser must be independent of loan production, may not participate in approving the transaction, and may not have an actual or apparent conflict of interest.

SOP 50 10 8.1, Appendix 19: 7(a) Collateral Requirements > Valuation of fixed assets (lines 5601-5603)✓ Verified

“Used or existing machinery and equipment (excluding furniture & fixtures) may be valued at no more than 50% of Net Book Value or 80% with an Orderly Liquidation Appraisal minus any prior liens for the calculation of “fully secured”;

SOP 50 10 8.1, Appendix 19: 7(a) Collateral Requirements > The loan must be fully secured (lines 5642-5656)✓ Verified

“Assets other than cash – An appraisal or other valuation by an independent third party is required if the valuation of the fixed assets is greater than the Net Book Value. A valuation of the fixed assets provided as part of a business valuation will not meet these requirements.

SOP 50 10 8.1, Chapter 1: Standard 7(a) Loans (Loans greater than $350,000) > Changes of ownership (lines 1685-1694)✓ Verified

“If the line will be secured by fixed assets and the valuation of fixed assets is greater than their Net Book Value, an independent appraisal by a qualified individual must be obtained by the lender to support the higher valuation.

SOP 50 10 8.1, Chapter 4: 7(a) CAPLines > Working Capital CAPLines: (lines 2214-2224)✓ Verified

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