Small business acquisitions often involve paying for more than just tangible assets – buyers also pay for intangible value such as brand reputation, customer loyalty, or proprietary know-how. For SBA lenders, understanding and properly valuing this intangible value is critical to prudent underwriting. Under the U.S. Small Business Administration’s SOP 50 10 8 (effective June 1, 2025), financing changes of ownership that include significant intangibles (including goodwill) requires careful documentation and independent valuation. These guidelines largely return to pre-2021 practices, emphasizing that lenders ensure borrowers have “skin in the game” when a large portion of a business’s value is intangible. In practice, this means requiring qualified appraisals and sufficient equity injection for transactions with high goodwill or other intangible assets.

This white paper provides an in-depth look at valuing intangible assets in private company deals – with a focus on U.S. practices and SBA requirements. We will:

Define separately identifiable intangible assets (trademarks, customer lists, patents, proprietary processes, etc.) and explain how they differ from goodwill.

Review methodologies for valuing identifiable intangibles versus goodwill in private business valuation.

Provide a detailed explanation of the Relief-from-Royalty (RFR) method, including how it works, selecting an appropriate royalty rate, and key criteria/benchmarks in practice.

Illustrate these concepts with examples from the food & beverage industry, where brand names, recipes, and customer loyalty often drive a substantial portion of a company’s value.

The goal is a practical, clear guide for SBA lending professionals familiar with finance and valuation, to help them navigate intangible asset valuation under SOP 50 10 8 with confidence and compliance.

Identifiable Intangible Assets vs. Goodwill

Intangible assets are non-physical assets that grant economic benefits to a business – for example, a famous brand name that draws customers, or a patented technology that enables a premium price. Crucially, identifiable intangible assets are those that can be specifically recognized and separated from the business itself. According to accounting standards, an intangible asset is considered identifiable if (a) it arises from contractual or legal rights, or (b) it is separable (capable of being sold or licensed independently of the business). Common examples include:

Trademarks and Trade Names – e.g. a restaurant’s brand name or logo, which can be licensed to franchisees.

Customer Lists & Relationships – e.g. a beverage distributor’s roster of client accounts and the loyalty/trust built with them.

Patents and Proprietary Technology – e.g. a patented brewing process or a secret recipe formula.

Copyrights and Artistic Materials – e.g. a winery’s exclusive label designs or a brewery’s unique label art.

Franchise Agreements or Contracts – e.g. franchise rights or supplier contracts that add value.

Non-Compete Agreements – legally enforceable agreements preventing a seller from competing, which can be valued as an intangible contract right.

These identifiable intangibles are distinct from goodwill. Goodwill represents the excess value of a business beyond its identifiable net assets. In other words, goodwill is the portion of purchase price that cannot be attributed to specific tangible or identifiable intangible assets – it is the residual intangible that reflects advantages such as a company’s reputation, assembled workforce, and synergies. Goodwill is not separable on its own; you can’t sell “goodwill” to someone without selling the business or a portion of it. It exists because the business as a whole is worth more than the sum of its identifiable parts. For example, an esteemed fine-dining restaurant might have goodwill arising from its long-time loyal customer base, chef’s expertise, and community reputation – elements which don’t meet the criteria to be separate assets on the balance sheet, but nonetheless make the business more valuable as a going concern.

In accounting terms, identifiable intangibles acquired in a business combination must be recognized separately from goodwill. Goodwill, by contrast, is recorded as a single amount, measured as the leftover purchase price after allocating fair value to all identifiable tangible and intangible assets. Importantly, internally generated goodwill (built through years of operation) is not recorded on financial statements because it is not an “identifiable resource” that can be isolated. It only becomes quantifiable in an acquisition when a price is paid for the business.

Key differences between identifiable intangibles and goodwill include:

Separable vs. Non-separable: Identifiable intangibles can often be transferred or licensed independently (e.g. you can sell a patent or license a trademark). Goodwill cannot be separated from the business – it stays with the enterprise as a whole. Some intangibles, like an experienced workforce or a company’s operational know-how, are “embedded” in the business and thus usually fall under goodwill because they are not readily separable.

Legal/Contractual Rights: Identifiable intangibles often are supported by legal rights (trademark registrations, patent grants, contracts). Goodwill does not have a legal right supporting it; it’s an economic concept of excess value.

Useful Life and Amortization: Many identifiable intangibles have a finite useful life (e.g. a patent expires in 20 years, a customer contract might last 5 years), after which their economic benefit may decline. These can be amortized or depreciated over time. Goodwill is generally considered to have an indefinite life (it remains as long as the business is intact) and is not amortized under U.S. GAAP, though it is tested for impairment.

Treatment in Valuations: Identifiable intangibles are often valued using asset-specific methods (discussed below). Goodwill, however, is typically not valued on its own in a transaction setting – it emerges as the difference between the total business value and the values assigned to identifiable net assets. In essence, Goodwill = Total Business Value – Tangible Assets – Identified Intangible Assets.

From a lending perspective, goodwill is often viewed as the most uncertain part of the purchase price – it’s sometimes called “blue sky” value. It has no direct collateral value and cannot be sold off separately to recover funds in default. SBA SOP 50 10 8 acknowledges this risk by requiring robust independent valuations when a loan finances a business purchase involving intangible assets (including goodwill). In fact, SBA rules have historically mandated extra caution (such as higher equity injections) for acquisitions with large goodwill components..

In summary, identifiable intangible assets are specific pieces of intellectual property or rights that can be separately valued, whereas goodwill is an aggregate residual value not tied to any one asset. Both contribute to what a buyer pays for a company, but they are handled differently in valuation analysis and by SBA lending standards.

Methodologies for Valuing Intangibles vs. Goodwill in Private Businesses

Valuing a private business with significant intangible value requires a combination of approaches. Professional valuation standards instruct appraisers to consider all three fundamental valuation approaches – Income Approach, Market Approach, and Cost Approach – when valuing intangible assets. In practice, income-based methods are the most common for intangibles, because they directly measure the economic benefits those assets produce. Below, we outline how these approaches are applied to identifiable intangible assets and contrast that with how goodwill is determined.

Income Approach for Intangible Assets: This approach estimates value based on the present value of future economic benefits attributable to the asset. For intangibles, appraisers isolate the income or cash flow that the asset generates (or the cost savings it provides) and then discount it to today. Common income methods include:

Relief-from-Royalty Method (RFR): Often used for marketing-related intangibles like trademarks and trade names. It estimates what it would cost to license the asset if the company didn’t own it – essentially, the royalty payments avoided by owning the asset. We cover this method in detail in the next section.

Multi-Period Excess Earnings Method (MPEEM): Used frequently for customer-related assets (customer relationships, contracts) or a primary technology asset. This method determines the cash flow remaining for the subject intangible after deducting “contributory charges” for all other assets’ required returns. For example, to value a customer list, an appraiser projects the revenue and profit from those customers over time and subtracts portions of profit deemed to come from the use of other assets (fixed assets, workforce, brand, etc.). The remaining profit stream – the “excess earnings” attributable to the customer relationships – is discounted to present value to get the asset’s value. MPEEM is essentially a specialized DCF focusing on one intangible asset’s contribution. It’s recommended when one asset is the primary driver of value or cash flows can be distinctly attributed to it.

With-and-Without (or “With-or-Without”) Method: This is another income-based approach often used for non-compete agreements, key contracts, or proprietary technology. It involves comparing two forecast scenarios: one assuming the company has the subject intangible, and one “without” it. The difference in cash flows between the two scenarios, discounted to present, indicates the value contributed by that asset. For instance, to value a critical proprietary recipe in a food business, the appraiser might project the business’s profits as normal (the “with recipe” scenario) and then project profits assuming the recipe is unavailable or less effective (“without”), perhaps resulting in lower sales or margins. The difference in the two profit streams (adjusted for risk and present value) would represent the value of that recipe intellectual property.

Profit Split or Incremental Profit Methods: In some cases, especially for technology or patents, analysts use a profit-split (e.g. the “25% rule” historically used in licensing negotiations) or other heuristic to estimate an appropriate portion of business profits attributable to the intangible asset. However, these are less formal and must be supported by market evidence.

The Income Approach requires careful determination of the asset’s remaining economic life, its impact on revenues or costs, and an appropriate discount rate reflecting the risk of those cash flows. Notably, valuation standards encourage considering the tax amortization benefit (TAB) when valuing intangibles under an income approach. In the U.S., many acquired intangibles can be amortized for tax purposes over 15 years (per IRS Section 197). The ability to amortize reduces future tax payments and thus adds value to the asset. In formal valuations (e.g. purchase price allocations), practitioners will often calculate the present value of these tax savings and add it to the “pre-tax” value of the intangible. For SBA loan appraisals, the TAB may or may not be explicitly added, but it’s conceptually part of fair market value.

Market Approach for Intangible Assets: The market approach looks for comparable sales or licenses of similar intangible assets to gauge value. In practice, this is challenging for intangibles, because outright sales of intangibles (apart from entire businesses) are less common and data can be scarce. However, one aspect of the market approach that is used is analyzing royalty rate benchmarks from licensing transactions. Royalty rate databases (e.g., RoyaltySource, ktMINE, RoyaltyRange) compile licensing deals for intellectual property. These can serve as market data points to derive an appropriate royalty rate or valuation multiple for an intangible. For example, if similar restaurant franchise trademarks have been licensed at 4% of sales, that provides a market-based reference for valuing a restaurant’s trade name via the Relief-from-Royalty method. Another market approach technique is looking at comparable company transactions: sometimes appraisers can infer the value of a particular asset by differences in purchase price multiples in M&A deals (though usually internal intangibles are not separately disclosed except in post-deal allocation reports). Overall, while the pure market approach is limited for intangibles, market benchmarks are frequently used to support income approach assumptions (especially for royalty rates and contributory asset returns).

Cost Approach for Intangible Assets: The cost approach considers what it would cost to recreate or replace the asset with a similar one, adjusted for obsolescence. For many intangibles, the cost to create them does not directly equate to their economic value (a brand that took $1 million in marketing to build may be worth far more – or far less – depending on its success). Thus, cost approach is typically a secondary method. It is more applicable to intangibles like developed software, databases, or an assembled workforce – where one can estimate the cost to hire and train employees or to develop software of similar utility. If using cost approach, appraisers must factor in functional obsolescence (parts of the asset that are not useful or up to current standards) and economic obsolescence (external factors reducing value). For example, to value an assembled workforce, one might estimate recruiting and training costs for similar workers, then adjust for any excess salaries or productivity differences.

Given these methods for identifiable intangibles, how is goodwill valued? In a full business valuation, goodwill is typically implied rather than directly calculated by its own model. The process is: value the business as a whole (using income or market approaches on the entire company’s cash flows), then separately value any identifiable tangible and intangible assets, and whatever value is left over is allocated to goodwill. Goodwill thus inherits its value from the overall business’s earnings capacity beyond the sum of the parts.

In smaller private company valuations (e.g. for SBA loans or matrimonial cases), analysts sometimes employ the Excess Earnings Method to explicitly estimate goodwill and other intangible value. The Excess Earnings Method (EEM) is a hybrid approach dating back to U.S. Treasury guidance in the 1920s (originally used to measure brewery goodwill lost due to Prohibition). It involves:

Estimating the value of net tangible assets (equipment, inventory, etc.).

Assigning a “fair” rate of return to those tangibles and computing the dollar earnings attributable to tangibles.

Subtracting that from the business’s total earnings to identify “excess” earnings, which are assumed to come from intangible assets (both identifiable and goodwill).

Capitalizing those excess earnings at an appropriate rate to determine the value of intangible assets (goodwill).

The capitalized excess earnings figure represents the combined value of goodwill and any other unidentifiable intangibles. Added to the tangible asset value, it yields the total business value.

For example, suppose a small food manufacturing business is earning $300,000 per year, and the value of its tangible assets is appraised at $1,000,000. If a fair return on those tangibles is say 10% (i.e. $100,000), then the remaining $200,000 of earnings are “excess” – attributable to intangible value (brand reputation, recipes, customer loyalty, etc.). If we capitalize $200,000 at, say, 20%, the implied intangible asset value is $1,000,000. This $1,000,000 would be recorded as goodwill (or split among identifiable intangibles and residual goodwill if further analysis is done).

While simple, the excess earnings method has well-known limitations. It essentially forces a division of earnings into two buckets (tangible vs intangible) when in reality all assets work together to generate profits. The selected rates of return and capitalization can be quite subjective and not based on market evidence, which is why IRS guidance (Rev. Rul. 68-609) cautions that the method should be used only when better data or methods aren’t available. Today’s valuation experts prefer to value the business as a whole with income or market approaches, and then allocate value to intangibles as needed for accounting or financing purposes. Goodwill, lacking specific cash flows of its own, is essentially the balancing item once all identifiable assets are valued.

Summary of Methodologies: Identifiable intangible assets are valued with targeted methods (like RFR, excess earnings, etc.) tailored to their specific contributions, often using the income approach with support from market data. Goodwill, conversely, is not measured by a discrete model in most cases – it is the residual difference arising from total business value less the sum of identifiable assets. For SBA lenders, the key takeaway is that an independent valuation will separately quantify the value of identifiable intangibles (if any) and the remaining goodwill or “blue sky”, so the lender can judge if the price (and loan amount) is reasonable. The SOP 50 10 8 explicitly requires that any financed intangibles (including goodwill, customer lists, patents, trademarks, agreements not to compete, etc.) be supported by a business valuation by a qualified source.

Relief-from-Royalty Method: How It Works and Key Considerations

One of the most widely used techniques for valuing certain intangibles is the Relief-from-Royalty (RFR) method. This method is especially applicable to trademarks, trade names, logos, and other marketing-related intangibles that could theoretically be licensed to or from a third party. The premise is straightforward: if you own a trademark or brand, you “relieve” yourself from paying royalties that you otherwise would pay to use that brand. Thus, the value of owning the asset is equal to the present value of the hypothetical royalty payments saved by ownership.

How the Relief-from-Royalty Method Works:
In practice, applying RFR involves several steps:

Project the Revenues that are attributable to the intangible asset. Typically this means forecasting the sales related to the trademark or trade name in question. For example, if valuing a beverage brand name, the analyst would project sales of the branded product line for future years. This requires determining the asset’s expected economic life – some trademarks are assumed to last indefinitely (subject to periodic renewals and continued use), while others associated with shorter-lived product lines might have a finite life. It’s important to align the revenue forecast with how long the asset will generate benefit. (In many cases, brands are modeled to have very long lives with perhaps a fade or terminal growth rate, unless there is a plan to discontinue the name.)

Determine an appropriate royalty rate that a licensee would pay for the right to use the asset. This is the crux of the RFR method and often the most research-intensive step. Valuators gather market evidence of royalty rates for similar intellectual property:

Comparable Licensing Agreements: Analyze royalty rates in actual licensing deals for similar brands or IP. Royalty rate databases (e.g. RoyaltySource, RoyaltyRange, ktMINE) and SEC filings of franchisors or companies that license their brands are prime sources. These sources might show, for instance, that in the food & beverage sector, royalty rates for licensed trademarks commonly range a few percent of revenue.

Industry Norms and Profit Margins: Consider what portion of profit is attributable to the intangible asset. Higher-margin products can often sustain higher royalty rates. Also, certain industries have rule-of-thumb royalty ranges. For example, in restaurant franchising, brand royalties paid by franchisees are often 4–6% of sales. However, inter-company trademark licenses might be lower. One industry analysis found trademark royalty rates in restaurant deals ranging from ~1.5% up to 5% of revenues, with median around 2.0% for fast-food and 2.3% for full-service restaurants. Such data provides a benchmark for selecting a reasonable royalty rate for a particular brand’s valuation.

Asset Strength and Unique Factors: Assess qualitative factors: Is the brand very strong with high customer loyalty, or more generic? Does it command pricing power? How competitive is the market? What’s the geographic scope? For example, a famous international sauce brand might warrant a higher royalty rate than a small regional brand, all else equal, due to its broad recognition and revenue-generating power. In one case, analysts valuing a healthcare services trademark observed market royalty benchmarks from 0% up to 5% and chose a rate at the low end (~1%) because the trademarks were new, competition was intense, and name recognition was limited. This illustrates how the chosen rate must reflect the asset’s specific risk and potential.

Apply the royalty rate to the projected revenue stream to calculate the royalty savings (the pretax dollars that would have been paid as royalties each year, but are saved because the company owns the asset). For example, if expected sales are $10 million and a 3% royalty is appropriate, the royalty saving is $300,000 per year (before tax). This step yields a stream of hypothetical royalty payments avoided.

Tax-effect the royalty savings to reflect that royalties would have been tax-deductible if paid. Since owning the asset means the company doesn’t pay the royalty, the “savings” effectively increases taxable income, so we consider the after-tax benefit. Using the above example, $300,000 in avoided royalty expense might save, say, $75,000 in tax (at a 25% tax rate), leaving $225,000 per year in net cash flow benefit from owning the trademark.

Discount the after-tax royalty savings to present value using a discount rate appropriate for the intangible asset. Typically, this rate is based on the company’s cost of capital plus perhaps an asset-specific risk premium. Intangibles are often riskier than the overall business. For instance, a discount rate for a strong trademark might be equal to or slightly above the company’s WACC, whereas a riskier technology patent could warrant a much higher rate. Industry practitioners often note that intangible asset discount rates rank higher than rates for tangible assets – in a general sense: cash, then real estate, then equipment, then working capital, then intangibles from lowest to highest risk. The discount rate should also align with how the cash flows were defined (if royalty savings are after-tax, use an after-tax rate). The present value of the royalty savings over the asset’s life (including, if applicable, a terminal value for cash flows beyond the projection horizon) represents the value of the intangible asset under the RFR method.

Add the Tax Amortization Benefit (TAB) if required. As noted earlier, when reporting a fair value for financial or tax purposes, analysts will often calculate the tax benefit of being able to amortize the intangible’s value over 15 years (in the U.S.) and include the present value of that benefit in the asset’s value. The rationale is that a buyer paying for the asset gets an additional benefit: a lower tax bill over 15 years thanks to amortization deductions. In an SBA lending context, the TAB might not be explicitly broken out in the appraisal, but sophisticated valuations will account for it. If included, it effectively bumps up the value by a factor related to the corporate tax rate and present value of 15-year tax savings.

Key Criteria and Benchmarks in Practice: Determining the right royalty rate and other inputs in RFR requires professional judgment and market data. Here are key considerations:

Quality of Comparables: Royalty rates can vary widely. The valuator should seek license data for similar industries and asset types. For example, royalty rates on beverage brand licensing deals will differ from software patent licenses. Licensing agreements often list not just the rate but terms like exclusivity, geographic scope, and whether the licensee also gets know-how or support. These factors should be adjusted for. If directly comparable licenses are scarce, analysts might turn to broader industry averages or even utilize the “relief-from-royalty” in reverse: for instance, if the brand owner’s operating margin is much higher than generic competitors’, part of that premium margin might justify a higher implied royalty rate.

Profitability of the Product/Service: A common benchmark is that a licensee needs to have sufficient profit after paying royalties to have an incentive to license. High-margin products can bear higher royalties. A rule used in some sectors is the “25% rule” – that a licensor might claim ~25% of the licensee’s profit in royalties – though this is more a rough guideline than a strict rule. For trademarks, an observed phenomenon is that royalty rates as a percentage of sales are often lower in low-margin businesses (like fast food) and higher in high-margin businesses (like luxury goods), since licensors will price to capture part of the value they contribute without rendering the licensee unprofitable.

Duration and Growth: The assumed useful life of the asset is critical. Some trademarks produce value indefinitely (with periodic reinvestment to support the brand), while others might be tied to a finite campaign or product line. In RFR models, using a very long life (or terminal value) implies the brand value will continue. Lenders and appraisers should be realistic – e.g., a fad food product’s brand may not have the staying power of, say, Coca-Cola. Also, the revenue growth assumptions should be consistent with the brand’s market outlook. Rapid growth initially might taper to a stable rate in a terminal period. These projections should ideally be grounded in the company’s actual plans or industry trend data.

SBA Considerations: From an SBA lender’s standpoint, the RFR method can substantiate a significant portion of intangible value with concrete market-based logic. If an appraisal shows, for example, that a company’s trade name is worth $500,000 based on saving a 3% royalty on $X million of sales, that gives comfort that the brand valuation isn’t just a “plug” number. SBA SOP 50 10 8 requires that the valuation of intangibles be performed by a qualified source. Such an appraiser will likely include relief-from-royalty analyses for any material trademarks, citing royalty benchmarks and perhaps industry studies to justify the inputs. SBA lenders should look for those references in the valuation report (e.g., mention of data from RoyaltySource or BVR, discussion of how the selected royalty rate compares to market benchmarks). This helps ensure the intangible valuation is grounded in market reality, which in turn supports the credibility of the loan underwriting.

In summary, the Relief-from-Royalty method is a powerful tool for valuing intangible assets that generate revenue through their use of a name or technology. It blends market data (royalty rates) with income valuation (present valuing the cash flows), and it is widely accepted in valuation practice. By focusing on the cost savings realized by ownership, RFR provides an intuitive measure of what the asset is worth to the business. However, its reliability hinges on choosing reasonable royalty rates and growth assumptions. Lenders reviewing such analyses should expect to see justifications for the royalty rate (with market comps) and a sensible projection of the asset’s revenue contribution.

Food & Beverage Industry Examples in Intangible Valuation

The food and beverage (F&B) sector offers vivid examples of how intangible assets are valued in practice. Intangible value is often a major component of restaurant, food brand, and beverage company acquisitions – from famous recipes and brand names to customer loyalty built over years. Below we discuss a few illustrations relevant to SBA lenders:

Restaurant Brand and Goodwill: Consider a small chain of restaurants being acquired with SBA financing. The purchase includes hard assets (kitchen equipment, furniture, perhaps a building if real estate is involved), but a large portion of the price is for intangibles: the trade name, the established customer base, secret recipes, and the goodwill of the business’s reputation in the community. An independent valuation might break down the $1 million purchase price as: $200k furniture & equipment, $50k inventory, $100k identified intangibles (e.g. $70k trade name, $30k recipe and proprietary procedures), and the remaining $650k as goodwill. To support these numbers, the appraiser could use RFR to value the trade name. If the restaurants generate $2 million annual sales, and similar eateries pay 4% of sales as franchise royalties to use a brand, the analyst might pick a lower royalty (say 2% of sales) given this is a local brand. That yields $40k/year in royalty savings; after tax and present value over, say, 10 years (assuming the brand’s advantage might fade or require reinvestment), it might come to ~$70k value for the name – aligning with the allocation. For a secret recipe or proprietary menu item, a with-and-without approach could be used: forecast the restaurant’s cash flows if the signature dish or sauce were not available (perhaps sales drop by 10%) versus with it, to estimate how much profit is tied to that recipe. That difference, capitalized, might justify, for example, a $30k value on the recipe know-how. Everything else – guest loyalty, location prestige, assembled staff – falls into goodwill. Lenders reviewing such a valuation should check that the sum of identified assets plus goodwill equals the deal price, and that the identified intangibles seem plausible (with methods as described). This breakdown also helps the lender evaluate how much of the loan is financing “blue sky” goodwill. Under SOP 50 10 8, any amount of financed goodwill is permissible as long as an independent valuation supports the total valuation and the borrower’s equity injection meets the guidelines.

Franchise Value in Food Service: Many SBA loans finance franchise restaurants (fast-food outlets, sandwich shops, etc.). In these cases, a portion of what the buyer pays is for the franchise rights and associated intangibles. For example, if someone buys a franchised burger restaurant, the price might reflect not just the equipment and leasehold improvements but also the franchise agreement, the license to use the national brand, and the training/know-how imparted by the franchisor. Typically, franchise agreements are contract-based intangibles that cannot be transferred freely (the franchisor usually controls transfers), so in a valuation they might be treated as part of goodwill or as a separate “intangible contract” asset if assignable. The value of the franchise (as an intangible asset) can be inferred from the franchise fees/royalties structure. If the franchisor charges 5% of sales as a royalty and 2% for marketing, the brand is clearly valuable – it’s providing benefit worth 7% of sales, or else the franchisee wouldn’t pay it. In a business valuation, an appraiser may implicitly value the franchise rights by ensuring the business’s cash flow (after paying those fees) still supports the purchase price. For SBA lenders, the key is that the earnings after paying ongoing royalties are sufficient for debt service. The intangible “franchise asset” here doesn’t get a separate line-item value (since the franchisee can’t sell it separately), but it contributes to overall goodwill. SBA SOP 50 10 8 requires analysis of management agreements or franchise arrangements to ensure the borrower retains control and benefit – which indirectly ties to intangible value (if a franchisor took too much economics, the business’s goodwill for the owner would be diminished).

Packaged Food or Beverage Brand Acquisition: In the manufacturing realm, consider a company like a specialty snack or craft beverage brand being acquired. A real-world example: when Diamond Foods acquired Kettle Foods (the maker of Kettle Chips) in 2010 for $616 million, about $235 million (nearly 40%) of that price was allocated to “brand intangibles,” i.e. the Kettle brand namemercercapital.com. This shows how significant a well-known brand can be in terms of deal value. In a smaller SBA-scale deal, imagine acquiring a regional hot sauce company whose brand has loyal customers. An appraiser would likely use RFR to value the trademark and trade name. Suppose the hot sauce line has $5 million in sales and, based on industry data, comparable sauce brands might license for around 3% of sales. Using 3% as a royalty rate, the gross royalty savings is $150k/year. After tax (say 25% tax, so $112.5k after-tax) and discounting, the brand might be valued around, for example, $800k. If the total purchase price was $2 million, and tangible assets (equipment, inventory) were only $500k, that $800k brand valuation would be a major component, with the remaining $700k as goodwill. An SBA lender evaluating this would note that a substantial portion of the loan is tied to the brand’s continued strength. They would want to ensure the appraisal cited market evidence for that 3% royalty (maybe referencing royalty rates in the condiment industry or similar deals) and that the financial projections for maintaining $5 million sales are reasonable. If those check out, the intangible valuation is credible. It also underscores why SBA may require the seller to stay on as a consultant during transition or have a non-compete – to protect the goodwill and customer relationships that underpin that brand’s value.

Customer Relationships in Food Distribution: Another example: a company that distributes organic foods to grocery stores might have relatively low tangible assets (some trucks, perhaps) but a valuable customer relationship network. The company’s value lies in its contracts and relationships with dozens of stores and restaurants. To value this customer-based intangible, an appraiser might use a multi-period excess earnings method. They would forecast the revenue from the existing customer base, attrition rates (how many customers might stop ordering each year), and the gross margins on those sales. Then they’d subtract contributions of other assets (perhaps a routine return on working capital and trucks). The residual cash flow is attributable to the customer relationships, which is discounted over the expected lifetime of those relationships. This might result in, say, $300k value assigned to “customer list/relationships.” The residual goodwill would then cover things like the assembled workforce (sales reps’ knowledge and rapport) and general going-concern value. For an SBA lender, seeing a customer list valued separately indicates that the appraiser identified a discrete intangible asset with its own cash flow stream. This can be comforting because it means not all of the intangible value was lumped amorphously into goodwill – some was tied to identifiable relationships that can be monitored (e.g., how many of those contracts actually transfer to the buyer, any key customer concentration, etc., which the lender can then pay attention to).

These scenarios show the diversity of intangible assets in food and beverage businesses – from brand names and recipes (which often suit the Relief-from-Royalty or with-and-without methods) to customer relationships and franchise rights (which might use excess earnings or be absorbed in goodwill). In all cases, SBA lenders should ensure the valuation report they receive:

Identifies the main intangible assets and distinguishes them from goodwill. This aligns with best practices and accounting standards (ASC 805 or USPAP) requiring identification of intangible assets acquired. Even if the loan is only concerned with the total going-concern value, knowing the breakdown helps in risk assessment. For instance, if 70% of the enterprise value is in one intangible (like a brand), the lender might consider that a higher risk concentration than if value is spread across tangible assets and multiple intangibles.

Uses appropriate valuation methods for those intangibles, with assumptions supported by industry data or professional sources. As discussed, a trademark valuation should have a royalty rate justification (perhaps citing an industry median of ~2-5% for similar brands), and customer-related intangibles should factor in realistic churn rates and contribution margins. The presence of citations to valuation standards or databases (for example, references to RoyaltySource data or adherence to AICPA Practice Aid guidance) is a positive sign of rigor.

Follows SBA’s required standards. SOP 50 10 8 mandates that the business appraisal be conducted by a “qualified source,” such as an accredited business appraiser (ASA, ABV, CVA, etc.), and that it conforms to generally accepted valuation practices. USPAP Standard 9 and 10 apply to business and intangible asset appraisals, meaning the report should disclose data sources, valuation methods, and reasoning for all conclusions. Lenders should verify the appraiser’s credentials and that the report contains the necessary certification and assumptions statements.

In the food and beverage industry, where passion and brand mystique often drive business success, intangible asset valuation is as much an art as a science. But by applying established methods and industry benchmarks, appraisers can convert those “secret ingredients” into credible dollar values. SBA lenders, in turn, gain insight into what exactly their loan is financing – be it a recipe, a logo, a loyal customer following, or simply the assembled goodwill of a beloved local establishment.

Conclusion

Intangible assets – from recognizable brand names and loyal customer relationships to patented recipes and proprietary techniques – frequently comprise a large share of a private company’s value, especially in sectors like food and beverage. For SBA lenders financing business acquisitions, recognizing and evaluating this intangible value is critical for sound credit decisions. SBA SOP 50 10 8 reinforces this by requiring independent business valuations for changes in ownership. The SOP’s guidance protects lenders (and the SBA as guarantor) from overstating goodwill or other intangibles that cannot serve as collateral, by ensuring that any financed blue-sky value is supported by objective analysis.

In this white paper, we discussed how separately identifiable intangible assets (trademarks, customer lists, patents, etc.) differ from goodwill – chiefly in that identifiable intangibles are distinct assets with legal or separable existence, while goodwill is a residual value tethered to the business as a whole. We reviewed key valuation methodologies: income approaches like Relief-from-Royalty and excess earnings methods are commonly used to isolate intangible value, often supplemented by market data (comparable royalty rates, transaction benchmarks) and occasionally cost-based indicators for certain assets. Meanwhile, goodwill is usually measured implicitly as whatever value remains after assigning value to tangible and identifiable intangible assets.

A focal point was the Relief-from-Royalty method, a favored technique for brands and other IP. We detailed its implementation – projecting revenues, researching comparable license rates, applying and discounting royalty savings – and emphasized the importance of selecting a supportable royalty rate with reference to market benchmarks. The discussion outlined criteria like industry norms (e.g. restaurant trademarks might merit a few percent of sales in royalty), asset strength, and useful life in determining the asset’s value. By understanding RFR, SBA lenders can better interpret valuation reports that peg significant value to a company’s name or trademark, and ask informed questions about the assumptions used.

Our examples from the food and beverage industry – whether a restaurant chain’s goodwill, a craft food brand’s trademark, or a distribution business’s customer relationships – illustrate how these concepts play out in real-world contexts. Intangible value can be substantial (in our example, Kettle Foods’ brand was 40% of the purchase price), but there are proven methods to quantify it. For lenders, the key is not to shy away from financing intangibles, but to ensure those intangibles have been rigorously valued.

In closing, SBA lenders should approach intangible asset valuation as both a science and an art. The science lies in the standardized methods and quantitative analysis – present values, market multiples, and so on – which we have outlined with citations to professional standards and research. The art lies in understanding the business’s unique qualitative factors – the “secret sauce” that makes it special – and ensuring the valuation appropriately captures those. By deeply understanding intangible valuation, SBA lenders can better structure loans (perhaps requiring earn-outs or standby seller notes when goodwill is high), set covenants (maybe tied to retention of key contracts or franchise rights), and monitor ongoing performance (watching that the intangible assets like brand and customer base remain healthy).

Most importantly, lenders can be confident that when they do finance goodwill and other intangibles, they are doing so on the back of sound valuation practice and compliance with SOP 50 10 8. Armed with a valuation report and the knowledge from resources like this paper, an SBA lender can justify that the purchase price – tangible and intangible value combined – reflects fair market value. That assurance is crucial when the SBA auditor or loan review comes around, as well as for the lender’s own risk management. After all, while you can’t touch or see goodwill or a trademark in the way you can a piece of equipment, their impact on a business’s success is very real – and now, through careful valuation, very measurable.