SBA requires an independent business valuation from a qualified appraiser when the amount financed in a change of ownership, less the appraised value of any real estate and equipment, exceeds $250,000, and whenever buyer and seller are related. In practice that means most acquisitions where goodwill is a large part of the price. The SBA loan for the purchase cannot exceed the valuation. Below the threshold, between unrelated parties, the lender may value the business itself. A low valuation caps the loan; the difference has to come from the buyer, the seller or the price.
- Threshold
- Amount financed, less appraised real estate and equipment, above $250,000
- Always required
- When buyer and seller are related, at any size
- Who performs it
- A qualified, independent business appraiser
- Effect
- The loan for the purchase cannot exceed the valuation
- Below the threshold
- The lender may do its own valuation
What SBA means by a business valuation
A business valuation is a written opinion of what the operating business being bought is worth: its earnings power, its assets and its prospects, as a going concern. It is different from the appraisals that often sit beside it in an SBA file. A real estate appraisal values the building; an equipment appraisal values the machines, usually at a liquidation value. See orderly liquidation value vs fair market value. The business valuation covers what is left, which in most small-business acquisitions is mostly goodwill.
SBA's concern is simple. A 7(a) loan can finance goodwill over up to 10 years with a government guaranty behind it. Without an independent check, a buyer and seller could agree a price the business cannot support and hand the risk to the lender and SBA. The valuation is that check, written into SOP 50 10 for every change of ownership above the threshold.
The threshold, worked through
The test takes the total amount being financed, not only the SBA loan, and subtracts the appraised value of real estate and equipment in the deal. If what remains is above $250,000, the valuation is required. Seller financing counts in the amount financed. The table shows how the arithmetic plays out on four deals, in thousands of dollars, with the threshold at 250.
| Deal | Amount financed | Appraised real estate and equipment | What remains | Valuation? |
|---|---|---|---|---|
| Accounting practice, office leased | 1,800 (SBA loan 1,600, seller note 200) | 60 | 1,740 | Required |
| Small route business, trucks included | 300 | 120 | 180 | Not required by SBA; the lender may value it itself |
| Manufacturer buying its building with the business | 2,400 | 2,250 | 150 | Not required by SBA |
| Son buying a small shop from his father | 200 | 40 | 160 | Required: the parties are related |
Two points trip buyers up. First, the subtraction uses appraised values, so an equipment list without an appraisal does not help. Second, the related-party trigger has no size floor. A buyer taking over from a parent, sibling or business partner needs a valuation even on a small loan. See buying a business from a relative and financing a partner buyout.
Who can perform it
The appraiser must be qualified: someone who regularly values businesses for a fee and holds a recognized business valuation credential, such as ABV, ASA, CVA or CBA. The appraiser must also be independent: not the seller's broker, not the seller's or buyer's accountant, and not paid on whether the deal closes. A valuation the buyer commissioned for negotiation can inform the process, but the lender needs one that meets SBA's standard and on which it can rely.
In practice the lender orders the valuation or approves the appraiser, and the buyer bears the cost as part of closing. The appraiser works largely from documents the lender already has: the target's tax returns, P&Ls and balance sheets, a year-to-date P&L, the list of assets transferring, the letter of intent and the buyer's plan. A lender will ask for the target's latest full year of figures, never an older one, and the valuation reflects the same.
A valuation from someone with a stake in the sale, however well done, does not satisfy SBA's rule.
When the valuation comes in below the price
The rule caps the loan, not the price. If the valuation is below the price but above the planned loan, the loan is unaffected, though the lender will note that the buyer is paying up. If the valuation is below the planned loan, the loan comes down to it, and the gap must be filled.
In plain numbers: a price of 1,500, a buyer injection of 150 and a planned SBA loan of 1,350. The valuation comes in at 1,300. The loan for the purchase is capped at 1,300, leaving 50 to find. The buyer can add cash, the seller can take a larger note, the price can come down, or some combination. A seller note counts toward equity only on full standby for the life of the SBA loan, and only up to half of the required injection. A note that is paid is allowed, but it is debt: its payments count in debt service. See full standby.
The full treatment of low valuations, including when a valuation can be corrected and how to protect a buyer in the letter of intent, is at does the SBA require a business valuation.
How the valuation fits with the other reports in an SBA file
An SBA acquisition can carry several third-party reports, each answering a different question. Buyers sometimes assume one covers another. It does not.
| Report | Question it answers | When it is needed |
|---|---|---|
| Business valuation | Is the business worth what the loan pays for it? | Above the $250,000 threshold, or a related-party sale |
| Real estate appraisal | What is the property worth as collateral? | When real estate secures the loan, at the lender's and SBA's thresholds |
| Equipment appraisal | What would the equipment fetch if sold? | When the lender relies on equipment value, including to lower the amount tested against the $250,000 threshold |
| Financial due diligence | Do the reported numbers hold up? | Every change of ownership from 1 October 2026 (SOP 50 10 8.1) |
| Quality of earnings report | Are the earnings real and repeatable? | Acquisitions of $3 million or more, excluding real estate, from 1 October 2026 |
The reports often draw on the same work. A quality of earnings report that adjusts EBITDA will feed the appraiser's view of earnings, and a valuation built on unverified add-backs is the one most likely to come in low.
Preparing so the number holds
A low valuation is usually an earnings problem in disguise: add-backs the appraiser could not verify, a seller's salary lower than a replacement would cost, or a latest year weaker than the price assumed. The same issues decide the loan size, so finding them before the letter of intent protects both the price and the financing. See SDE vs EBITDA for lenders and how lenders value a business.
Transparent's lender package, financing model, lender presentation, blind teaser and underwriting memo, is built in a day once the documents are in. The financing model shows the loan at the agreed price and at a lower supported value, so buyer and lender both see the fallback before the appraiser reports. On SBA loans the lender pays Transparent, not the borrower.
Common questions
- Does the SBA valuation have to match the purchase price?
- No. It has to be at least the amount of the loan for the purchase. A valuation below the price but above the loan leaves the loan unchanged.
- Can I use the valuation my business broker prepared?
- Not to satisfy SBA's rule. The appraiser must be independent of the sale, and a broker is paid on it closing. The broker's analysis can still be shared with the appraiser as background.
- Is a valuation needed on an SBA refinance?
- The requirement discussed here applies to changes of ownership. A refinance is underwritten on the business's cash flow and collateral, with real estate or equipment appraisals where they secure the loan.
- Does seller financing count toward the $250,000 test?
- Yes. The test uses the total amount being financed in the deal, including a seller note, less the appraised value of real estate and equipment.
- Who pays for the valuation?
- Usually the buyer, as a closing cost, even though the lender orders or approves the appraiser.