SBA rules · SOP 50 10 8.1
Does an SBA loan require an appraisal?
Commercial real estate appraisals are required for project properties valued over $500,000 and in designated higher-risk transactions, while an independent business valuation is required on 7(a) changes of ownership whenever the business purchase price exceeds $350,000 or involves related parties.
Quoted from SBA SOP 50 10 8.1Every quote checked word for word
In detail
- 504 Real Estate Appraisals: An appraisal is mandatory if the estimated value of the project property is greater than $500,000, or at $500,000 and below if the project involves a change of ownership, close relationships, seller carryback debt, land equity owned for two or more years, or lender OREO.
- 7(a) Real Estate Appraisals: An appraisal is required when securing commercial real estate over $500,000 under programs like CAPLines and Export Express, when acquiring lender OREO, when the business was transferred within 36 months of application, or when undertaking new construction or substantial renovations.
- 7(a) Independent Business Valuations: An independent business valuation from a qualified source is required for all changes of ownership where the business purchase price exceeds $350,000, or regardless of amount if there is a close relationship between buyer and seller.
- Valuation Exceptions and 504 Scope: For a 7(a) change of ownership of $350,000 or less, the lender may perform an internal valuation absent a close relationship, and ESOP loans may use an ERISA valuation; 504 loans do not finance goodwill or intangibles, requiring an appraisal of eligible fixed assets rather than a business valuation.
- Residential Collateral and Appraiser Credentials: SBA imposes no specific appraisal requirements for residential or non-commercial real estate pledged to secure a personal guaranty, but commercial real estate appraisers must be state-certified whenever property value exceeds $1,000,000.
The source
What the SOP says
“SBA requires a real estate appraisal if the estimated value of the Project Property is greater than $500,000.
“The CDC must obtain an appraisal under the following circumstances:
“Determining the value of a business (not including real estate, which is separately valued through a real estate appraisal) is the key component to the analysis of any loan application for a change of ownership.
“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.
“If the estimated value of the commercial property exceeds $1,000,000, the appraiser must be State-certified.
“An appraisal of the business real estate that meets the appraisal requirements above; and
“SBA has no specific appraisal requirements for non-commercial real estate taken to secure a personal guaranty.
“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.
“When real estate is part of the acquisition, the Lender must remove the appraised value of the real estate from the price set by the purchase and sale agreement to determine the Business Purchase Price for purposes of financial due diligence requirements set forth in this Appendix.
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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.