Matt Stelzman: SBA Loans Require An Independent Valuation

Monday, May 6, 2013 - by Matt Stelzman
Matt Stelzman
Matt Stelzman

The Small Business Administration maintains a variety of loan programs to help businesses obtain financing on favorable terms. For small businesses interested in acquisitions, the popular 7(a) program offers SBA-guaranteed business acquisition loans with competitive interest rates, extended repayment terms and other benefits.  

Under current SBA regulations, these loans require an independent business valuation from a qualified source if: 1) the amount being financed (less the appraised value of real estate and equipment) is more than $250,000, or 2) there’s a “close relationship” between the buyer and seller (for example, they’re business partners or family members). The independence requirement means that it’s risky to rely on valuations performed by brokers or other parties with an interest in the transaction’s outcome.

A “qualified source” is someone who “regularly receives compensation for business valuations and either: 1) is a licensed CPA that performs the valuation in accordance with the AICPA’s Statement on Standards for Valuation Services, or 2) has earned one of several valuation credentials, including accredited senior appraiser, certified business appraiser, accredited in business valuation or certified valuation analyst. 

Other valuation requirements are that the:

Valuation be requested by and prepared for the lender. It’s permissible for a broker to recommend a valuation expert so long as the broker doesn’t engage the valuator itself. 

Lender may not use a valuation prepared for the buyer or the seller (although the cost may be passed on to the buyer).

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

Valuation report must contain the valuator’s opinion of value, qualifications and a “signature certifying to the information contained in the valuation.”

Lender obtain a copy of the financial information relied upon by the valuator verifying that information against the seller’s IRS transcripts. 

If your clients are involved in acquisitions financed by SBA-guaranteed loans, it’s critical to verify the independence and qualifications of your valuation experts. Also, to expedite the transaction and the SBA approval process, complete the valuation early in the negotiations.

* * * 

Matt Stelzman is a certified valuation analyst and master analyst in financial forensics designated by the National Association of Certified Valuation Analysts. Mr. Stelzman has over 10 years of experience in business valuation and litigation support services.  He works in the Specialized Services Group of Henderson Hutcherson & McCullough, PLLC.  For more information visit their website at www.hhmcpas.com or call Mr. Stelzman directly at 702-8147.


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