SBA Business Valuation for SBA Financing of Business Sales – Presentation

Thank you for the opportunity to share some thoughts on SBA business valuation for SBA loans directed at SBA lenders and their advisors.

(Based on a SBA business valuation presentation presented to the Maryland Commercial Lenders Association on September 26, 2018.

Business valuations are all about understanding the drivers that bring value to a business and how valuators are required to measure those drivers.  An important place to start is with the questions;

  • Who is the value is being calculated for?
  • What is the standard of value to be used?
  • What is the purpose of the valuation?
  • Why is the valuation being conducted?

In general, for SBA purposes a third party appraisal is required when financing business sale transactions if:

  • the amount being financed after deducing for the appraised value of equipment and real estate is more than $250,000,
  • there is a close relationship between the buyer and seller – family members / partners /employees, or
  • the lenders internal policies require it.

I hope you enjoy the presentation and learn a few things you can apply tomorrow from it.

Questions or to contact:

Presenter, Greg Caruso, JD, CPA, CVA
gcaruso@harvestbusiness.com 609-664-7955

 


Clients choose Harvest Business Advisors for our accurate business valuations and our consistent ability to deliver a high price as part of a smooth exit transaction.
Harvest Business Advisors provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia.
Connect with us at info@harvestbusiness.com or 443.334.8000 to discuss selling your business, ordering a business valuation or buying a business.

 

 

 

 

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SBA 7(a) Loan Program Guarantee Budget Increased

Harvest Business Advisors, SBA Business Appraisal and SBA Business Valuation experts received the below email from the SBA concerning the SBA 7(a) loan program today. 

Click to visit our SBA Business Appraisal and SBA Business Valuation  website.

SBA Daily
Sent: Tuesday, July 28, 2015 2:26 PM
Subject: Information Notice 7(a) Loan Program Authorization Level
Information Notice
TO: Baltimore District Distribution CONTROL NO.: 5000-1346
SUBJECT: 7(a) Loan Program Authorization Level EFFECTIVE: July 28, 2015

The purpose of this notice is to announce that a bill to increase the lending authority for the 7(a) loan program to $23.5 billion for FY 2015 was passed by Congress and signed by the President. As a result, effective this afternoon, SBA is again able to guarantee 7(a) loans this fiscal year. Requests in the existing queue will be funded first, followed by new loan guarantee requests, which will be processed as usual.

SBA is evaluating the additional provisions of the new law and will be providing further guidance as necessary. We appreciate the patience of our borrowers and lenders and look forward to continuing to serve the small business community through the 7(a) loan program.

SBA Field Offices must notify lenders about this Notice. Questions concerning this Notice should be directed to the lender relations specialist in the local SBA field office. The local SBA field office may be found at www.sba.gov/localresources.

Clients choose Harvest Business Advisors for our accurate business valuations and our consistent ability to deliver the highest price in the smoothest sale transaction possible. Harvest provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia. Connect with us at info@harvestbusiness.com or 443.334.8000 to discuss selling your business, ordering a business valuation or buying a business.

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
gcaruso@harvestbusiness.com

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
609-664-7955

 

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
gcaruso@harvestbusiness.com
609-664-7955
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