SBA Loans and SBA Loan Business Valuations increase in Maryland, Delaware, and New Jersey

As reported in the Colman Report, a daily report on small business and SBA lending, SBA loan volumes in the first two months of fiscal 2015 are continuing to increase from 2014.  The SBA 7(a) program has approved 23 percent more loans through the first month.  The average loan size is holding at $348,265.  These statistics are consistent with what we are hearing from local lenders working from Northern Virginia through New Jersey.  Additionally we are working on a large volume of business valuations we are preparing for SBA lenders.

Gregory Caruso, JD, CPA, CVA
Harvest Business Advisors
Business Valuations, Business Brokerage

Obtaining an SBA Business Valuation when you are seeking an SBA Business Acquisition Loan

When a bank is obtaining a SBA loan to finance the purchase of a business a business valuation is required.  If there is less than $250,000 of goodwill the bank often can perform the valuation internally.  If more than $250,000 of goodwill value then an independent valuator needs to be retained by the bank.  This business valuation expert needs to have proper business valuation credentials like a CVA (Certified Valuation Analyst).  SBA business loans for the sale of businesses tend to be cash flow loans.  Namely the cash flow from the business must support the purchase price.  The bank underwriter checks for that.  The valuation expert is asked to determine that the purchase price of the business is not more than the “fair market value” of the business using accepted valuation principals.

Want to know more?  Please click here for the downloadable e-book. “7 Things You Must Know Before You Order a Business Valuation” 

For more information on SBA Business Valuations by Harvest Click Here

The valuator is charged with reviewing the overall business situation, starting with the overall economy, industry, and then to work down to the financials in order to ensure that the price and value align.  Typically the business valuator will need the following documents:  3 years tax returns, year to date financial information, the lease or real estate purchase agreement, major client information, accounts receivable and accounts payable information, ownership information, and a copy of the sales agreement.  Specific situations will require more information.  It is also helpful to provide documentation on all “add backs” necessary to normalize owners income.  Often the seller will be interviewed or a questions sheet will be provided to him asking important questions.  It is important to provide documentation as soon as possible in order to allow the valuation to proceed.  Generally valuations take about two weeks from the time all documentation is received.  Clearly they can be done much quicker when necessary.

If your documentation is in good order and your tax return or reviewed cash flows support your price getting a business valuation is a fairly simple part of the SBA loan process.  If you have any questions you may always give us a call.

Gregory Caruso
Harvest Business Advisors
National Business Valuations, Business Brokers
Maryland, New Jersey


Fair Market Value, Fair Value, and Discounts for Business Owners when Planning or Selling a Business

In our previous post I talked about Strategic Value as a standard of value when business owners are valuing their business.  Instances where you need to know the value of your business include planning to sell or transition their business through business brokerage or a sale transfer to managers or family.

Want to know more?  Please click here for the downloadable e-book. “7 Things You Must Know Before You Order a Business Valuation” 

Fair Market Value. This value is the value a typical buyer who will not derive strategic efficiencies will pay for your business. Typically these buyers are called Financial Buyers. They are looking for what I call “working models”. Almost like a franchise they want to step into your “business model” and run it. This is the value of the business to a control owner that can make changes as desired. This value typically used for buy-sell agreements and transactions involving closely held and family business interests.  In many jurisdictions a version of this can be called Fair Value which again, is generally fair market value without discounts even when the interest is a minority interest.  This is also the value generally used on SBA loans during SBA business valuations.

Fair Market Value with Discounts.  This is the value of a minority interest in the business. The owner of this interest is either a minority owner (under 50%) or has agreed to restrictions on company control. Therefore this owner has little control over continued employment at the company (if they are an employee), distribution of profits, company policy or planning etc. Namely they are along for the ride. Because of the lack of control these interests are valued below fair market value. This is primarily used in estate and gift tax planning to lower the give or estate value. Many exiled family members from family businesses will also tell you that the lower value is very real when family harmony breaks down.

Finally, business value can be more or less than the price negotiated between parties.  Price is subject to the actual market, how well the company is positioned by its brokers, the players in the market, and other variables that cannot be fully taken into account when determining value.

Conclusion. If a business has a fair market value of $1,000,000 with 100 shares of stock issued the 100 shares to a strategic control buyer might be $1,200,000 or more. The value of 1 share to a non-control buyer (fair market buyer with discounts) might be $700 not the $1,000 fair market value. It is important to know why your business is being valued and to specify the correct level of value be used.

Gregory R. Caruso
Harvest Business Advisors
Business Brokerage, Business Valuation and Appraisal

Company Valuation and Business Valuation Standards of Value for Litigation, Mergers & Business Brokerage and Other Situations

Levels of Value for Company Business Valuations and Appraisals, business owners who are thinking of selling their business or doing routine succession planning need to understand the value of their business. Often owners are surprised when they learn that company value, enterprise value, or business value found might be dramatically different depending on the situation.   The value of the business is usually determined by what it is worth to others.   From that standpoint, it makes sense that buyers in different situations might have different values. This is because different buyer types will be able to make different amounts of money (both theoretically and actually) from the business.

Want to know more?  Please click here for the downloadable e-book. “7 Things You Must Know Before You Order a Business Valuation” 

Below I discuss Strategic Control Value.

In my next Post I will discus Fair Market Value and Minority Interest Fair Market Value.  These are the main standards of value used.

Strategic Control Value. This value is the value obtained when 2+2=5. This buyer is often called a synergistic buyer. Namely the acquirer can obtain more value from the target than the target can make on their own. This can happen because of operational efficiencies or because of the ability to increase market sales with incrementally lower costs. The classic example of an operational efficiency is two delivery companies running the exact same routes. If they merge the combined entity should be able to deliver the same packages with substantially less trucks and drivers. An example of the ability to increase market sales is when a small software company is purchased by a larger one who has a sales force that is already established in the industry the software is designed for.

Studies have shown that operational efficiencies are more predictable than sales and revenue increases. For owners it is important to remember that while strategic buyers and strategic value exists in terms of day to day operations you must run your business as if you will own it forever without a strategic buy-out. If you can modify your business plan to court a strategic buyer without putting your day-to-day efficiencies and operations at risk fine but never put yourself in the position of only having one buyer or being inefficient with the hope of attracting one buyer.

In summary strategic control value is a high value that can only be met in certain times by certain buyers.  It is worth calculating when you are going to sell and strategic buyers are a real possibility.  It is not worth putting your whole company at risk for to obtain if it limits current profitability or future options.


Greg Caruso, JD, CPA, CVA
Harvest Business Advisors
Business Brokerage, Company Valuation, Business Appraisal
Princeton New Jersey, Baltimore Maryland, Columbia Maryland



Premium Product Pricing can Lead to High Business Valuations

Premium product pricing should result in higher profits.   Higher profits absolutely creates higher business values through the business valuation process and higher prices through a proper business sales process.   You can buy a dozen eggs for $1.50.  Click to read how this farming business obtains premium pricing and receives close to $5.00 per dozen eggs.  How can you demonstrate value and obtain premium pricing?

Want to know more?  Please click here for the downloadable e-book. “7 Things You Must Know Before You Order a Business Valuation” 

Gregory Caruso, JD, CPA, CVA
Harvest Business Advisors
Business Brokerage, Business Valuation,
Bel Air Maryland, Perry Hall Maryland, Glen Burnie Maryland, Princeton NJ



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