SBA business valuations - 10 things you need to know

1. SBA Business Valuation 10
things you need to know

2. SBA SOP 50 10 5 (h)1
O Business Appraisal Requirements –
Change in ownership pp.171-173.
O If goodwill > 250k an independent business
appraisal is required
O If there is a close relationship between the
buyer and seller (i.e. family members or
business partners) then business appraisal
required
O Qualified Sources-for Business Appraisals
O Equity Injection – goodwill >500k = 25%

3. Which report format ?
O USPAP (ISBA promotes Standards 9 and
10)
O Appraisal Report
O Restricted Appraisal Report
O AICPA SSVS No.1
O Calculated Value
O Conclusion of Value

4. Which standard of value?
O SOP is silent on this topic
O Fair market value?
O Investment Value?

6. Value of Intangible Assets
O SOP 50 10 5 (h) require that the lender loan
documentation must include the value of the
intangible assets (p.121).
O The value of the intangible assets is determined by the
value derived in the business appraisal minus the
sum of working capital assets and the fixed assets
being purchased.

7. Data you need
O Lenders Credit Memo
O Business tax returns and/or
financial statements for the most
recent 3 years
O Interim financials (if applicable)
180 day rule p.195 SOP 50 10
5(h)
• Consummated purchase contract
• W-2’s for equity owners
• Projections if the company has
savvy financial management they
can justify use of the DCF

8. Be prepared to answer stakeholder ?’s
regarding an adjustment to the P&L to depict
fair market rent when the real estate is
owned by the operating entity

9. Be prepared to explain to stakeholders:
S-Corp distributions are not an add
back to determine cash flow

10. Business owner, business broker, and
bank thought normal volume of work
in the queue was an excess asset

11. What if business appraisal is
lower than purchase price
O Any amount in excess of the business
valuation may not be financed with the
SBA guaranteed loan

12. Bonus Items: Other pertinent info
O You do not need to conduct a site inspection
O Insure interim P&L and BS are on the same
basis of accounting as the prior years info
O Undocumented adjustments to income and/or
expense claimed by the stakeholders

14. Citations
O US Small Business Administration Office of
Financial Assistance, SOP 50 10 5 (H), May 1,
2015.
O Uniform Standards of Professional Appraisal
Practice (USPAP)
O American Institute of Certified Public Accountants
“Statements on Standards for Valuation Services
No. 1”, Introduction and Scope (AICPA SSVS No.
1)
O SBA Information Notice-Effective May 4, 2015,
Control No.: 5000-1340