Business Valuation is Now Required For SBA Loans

An applicant or applicants for an SBA loan can use the loan to purchase a 100% interest in an existing business. As a rule, the seller of the interest "must not remain as an officer, director, stockholder or employee of the business." If the loan meets or exceeds $350,000, the SBA now mandates that the loan documentation file must also include "a business valuation from a qualified source". The SBA defines a qualified source as "an individual who regularly receives compensation for business valuations and is accredited by a recognized organization." An example of such accreditation, and cited by the SBA, is the Accredited Valuation Analysts (AVA)/Certified Valuation Analyst (CVA) granted by the National Association of Certified Valuation Analysts (NACVA). According to the NACVA website, the only difference between a CVA and an AVA is that a CVA also holds a CPA certification; an AVA generally holds advanced business degrees, such as an MBA or PhD, or both.

Typically, there are two types of valuation reports; "complete" and "other". For complete valuation reports, a site visit is done by the business valuation expert, company officers are interviewed, photographs are taken, documents are reviewed, and other substantive information is gathered. A complete report is extremely comprehensive, and can be many pages in length. Reports that are classified as "other" are typically calculation reports (a calculation of value) or summary reports (includes a brief summation that explains the calculations, as well as some economic data). The SBA SOP 50-10(5) adds guidance as to the type of report it looks for in the loan file, stating that "a site visit of the assets acquired be done", and that "the lender must document in it its loan file the date of the site visit as well as comments." This language implies that third-party's conducting the business valuation must perform a complete report, as other types would not typically be as comprehensive. Therefore, a valuation classified as "other" may not suffice as an adequate business valuation as required by the SBA.

For more information on the SOP 50-10(5) "Lender and Development Company Loan Programs" issued by the SBA, or other business valuation inquiries, please contact Joel Nowakowski, MBA, AVA, Principal, JN Capital Advisors Business Valuation Services Group at (203)769-6156 (direct) (860)315-0455 (cell) [mailto:joel@jncapitaladvisors.com]joel@jncapitaladvisors.com

Joel Nowakowski, MBA, AVA - Principal,JN Capital Advisors,Hartford, CT
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