Getting ready to request an SBA Loan for financing? Like a lot of things in life, it’s best to go into it being prepared. That means understanding the SBA Loan Process, and doing all […]
7(a) SBA Loans:
Who Can Perform the
The 7(a) loan program is an excellent platform – both in terms of access to capital for small business, as well as a tool for lenders to access that market. The program often requires a 3rd party appraisal. Here’s what you need to know.
7(a) Loan Appraisal Requirements
The SBA has processed over 43,000 loans worth almost $16 billion already in fiscal year 2016, succeeding the totals from the previous five years. Clearly, more individuals are buying and selling businesses. Amongst the multitude of actions that must take place before, during, and after the transaction, the business appraisal or valuation is one of, if not the most, important task that needs to be accomplished.
The business appraisal assists the buyer in making a determination that the asking price is supported by an independent, unbiased, and qualified source. Closing delays occur when there is not a qualified valuation firm performing the appraisal. According to the SBA lending program rules, the business appraisal must be requested by the lender and not the seller or the loan applicant.
So what or who is a qualified source? In SBA SOP 50 10 5(H) that is defined as “an individual who regularly receives compensation for business valuations” and is accredited by one of the following:
- Certified Valuation Analyst (CVA) accredited through the National Association of Certified Valuation Analysts
- Accredited Senior Appraiser (ASA) accredited through the American Society of Appraisers
- Certified Business Appraiser (CBA) accredited through the Institute of Business Appraisers
- Accredited in Business Valuation (ABV) accredited through the American Institute of Certified Public Accountants
- Accredited Valuation Analyst (AVA) accredited through the National Association of Certified Valuation Analysts
- Accredited Business Certified Appraiser (ABCA) accredited through the International Society of Business Analysts.
50 10 5 (H) also describes two categories states who must complete the business appraisal in each situation. When the loan is less than $250,000, the lender may perform its own valuation of the business. However, if the loan exceeds $250,000 or if there is a close relationship between the buyer and seller, family for example, the lender must get an independent business appraisal form a qualified source.
Typically, the valuation firm will need documents similar to those used for the loan application and they will probably include:
- 3-5 Years of Company tax return
- Interim Statements (within 90 days of valuation date)
- AR and AP Aging
- Management forecast or budgeting (if available)
- Completed valuation questionnaire
- Purchase Agreement or LOI
- Internal loan write-up
Bottom line: Selling your company (or buying one) with an SBA guaranteed loan will not be an easy endeavor. Don’t delay the Valuation Process. Get with the lender about finding a trusted and certified Business Valuation Firm early on in the process and have the comfort that you will get your appraisal done in the appropriate amount of time.
Get in Touch
How can Quantive Help?
Quantive performs hundreds of valuations every year – many in support of SBA Loans. Get in touch to learn more!
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