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SBA Loans - BUSINESS VALUATIONS NOW REQUIRED
EFFECTIVE: AUGUST 1, 2008
On August 1st of this year, the U.S. Small Business Administration adopted SOP 50-10(5), requiring an independent business valuation for all SBA 7(a) loans greater than $350,000.
Specifically, Chapter 4, §2c(4)(b), requires that if the loan is for greater than $350,000 or if there is a close relationship between the buyer and seller, the lender must obtain an independent business valuation from a qualified source. A "qualified source" is an individual who regularly receives compensation for business valuations and is accredited by a recognized organization.
Gryphon Valuation Consultants (GVC) is your Las Vegas resource for business valuations.
GVC has been involved in over 250 business valuation engagements since it was established in Las Vegas in 2003.
The companies for which GVC has provided valuation services span across several industry categories including gaming, technology, retail, food and beverage, construction and health services amongst others. Additionally, its principal, Donald R. Parker, has been designated as an expert witness and has provided testimony in a variety of legal matters involving valuation issues. Engagements have covered purposes ranging from M&A and divorce to estate and business planning, partnership disputes and corporate restructuring.
Below is the complete text from SOP 50-10(5), Chapter 4 §2c(4) describing situations in which an independent business valuation is required by the SBA:
CHAPTER 4
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CREDIT STANDARDS, COLLATERAL AND ENVIRONMENTAL POLICIES
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2.
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COLLATERAL
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c.
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Appraisal and Business Valuation Requirements
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(4)
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Change of Ownership – Additional Requirements
When the loan will finance a change of ownership, a lender must meet additional requirements when the loan amount is more than $350,000 to ensure that the buyer is not paying more for the business than its cash flow can sustain.
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(i)
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Business Valuation
Determining the value of a business (not including real estate which is separately valued through an appraisal) is the key component to the analysis of any loan application for a change of ownership. An accurate business valuation is required because the change in ownership will result in new debt unrelated to business operations and create "blue sky" or goodwill. A business valuation assists the lender and the buyer in making the determination that the seller's asking price is supported by historic operations.
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(a)
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For loans of $350,000 or less, the lender may do its own valuation of the business being sold.
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(b)
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For loans greater than $350,000 or if there is a close relationship between the buyer and seller, the lender must obtain an independent business valuation from a qualified source. A "qualified source" is an individual who regularly receives compensation for business valuations and is accredited by a recognized organization. [Emphasis added]
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Please don't hesitate to call the next time you have a need for business valuation services or if you would like more information regarding qualifications, experience or fees.
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