OnwardLesson 8.2
The lender's valuation and appraisal
The lender orders its own independent valuation of the business. For SBA loans, this is required on any purchase with a business price above $350,000.
The short version
- The lender orders its own independent valuation of the business. For SBA loans, this is required on any purchase with a business price above $350,000.
- The loan cannot be larger than the valuation supports.
- If real estate or major equipment is part of the deal, the lender orders separate appraisals of those too.
- If the valuation comes in below your price, you have options: renegotiate, add cash, add a standby seller note or walk away.
- Your own price work and your CPA's review help you see a low valuation coming.
The business valuation
For purchases financed with an SBA loan, rules effective October 1, 2026 require an independent valuation of the business when the business price is above $350,000. At $350,000 or less, the lender may value the business itself, unless you and the seller are closely related. The lender chooses the appraiser and may pass the cost to you. What you pay for it counts toward your required cash. The appraiser works for the lender. The valuation covers the business only; any real estate is appraised separately.
The SBA accepts valuations from professionals holding one of five credentials: ASA, CBA, ABV, CVA or BCA. The appraiser looks at the business's earnings, its industry, its risks and sales of similar businesses.
Buyers paying cash or using a conventional loan are not bound by this rule, though many lenders order a valuation anyway.
Other appraisals
- Real estate, if you are buying the building. Usually with an environmental review.
- Equipment, for equipment-heavy businesses or where equipment secures part of the loan.
When the valuation comes in low
The lender will not lend more than the valuation supports. If it comes in below your agreed price, you can:
- Renegotiate the price with the seller, using the valuation as evidence. Lesson 9.1 covers this.
- Add more of your own cash to cover the difference.
- Ask the seller to carry more of the price as a note. Under SBA rules, that note must be on full standby, with no payments until the bank is repaid. Lesson 6.4 covers this.
- Walk away, if your letter of intent allows it.
A low valuation is not always bad news. It is an independent view that you may be overpaying.
See it coming
If your rebuilt earnings and the size benchmarks in Lesson 5.4 already suggest the price is high, expect the valuation to say so too. It is better to address that before you sign the letter of intent.
Take this to your own people
The questions for this topic, for your attorney, your accountant or your lender.
- For your lender: "Who will do the valuation, what does it cost and when will I see it?" Listen for: the appraiser's credential, the cost and the timeline.
- For your M&A attorney: "What does my letter of intent allow if the valuation comes in low?" Listen for: whether you can renegotiate or walk away.
- For your CPA: "Based on what we know, is the valuation likely to support this price?" Listen for: an honest read, before you spend more.
This names the question. Your CPA, your M&A attorney and your lender answer it for your situation.
Figures from SBA SOP 50 10 8.1, effective October 1, 2026.
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