An SBA loan appraisal can make or break a deal. Proper preparation ensures a smooth process, aligns expectations between lender and borrower, and mitigates the risk of loan denial. This paper outlines what business owners and advisors need to know before the valuation begins.

1. Understand the Appraisal Requirements

• SBA SOP 50 10 8 requires valuations by a qualified source using accepted methodologies.
• Appraisal must support fair market value, not strategic or synergistic pricing.
• Triggered when the business acquisition price (minus real estate and excess assets) exceeds $250,000 or if there’s a close relationship between buyer and seller.

2. Gather Required Documentation

• 3 years of tax returns (business + personal if sole proprietorship)
• Year-to-date financials + interim statements
• Asset lists with market value estimates
• Organizational documents (e.g., Articles, Operating Agreements)
• Customer/vendor concentration reports
• Lease agreements and debt schedules
• Adjusted financials reflecting normalization adjustments

3. Clarify Owner Involvement

Appraisers need to understand the owner’s role. If the owner is critical to operations, that affects risk and value. Document:

• Owner hours and duties
• Key employee resumes
• Transition plans or training timelines

4. Normalize Financial Statements

The valuation should reflect economic reality, not just accounting figures. Be ready to support:

• Adjustments to owner salary and perks
• One-time or non-recurring expenses
• Non-operating income or assets

5. Anticipate Questions on Rent, Compensation, and CapEx

These are common problem areas. Provide:

• Market rent comps for real estate
• Reasonable owner compensation benchmarks
• Historical and projected capital expenditures

6. Know What the Appraisal Is—And Isn’t

• It is not a guarantee of loan approval.
• It is not based on what you hope to sell the business for.
• It is a third-party opinion of value under market conditions, based on available data.

7. Communicate Early and Clearly

Ensure the appraiser gets accurate and timely information. Delays or poor records can reduce value and cause underwriting issues.

The SBA appraisal isn’t just a hoop to jump through—it’s a cornerstone of a credible, financeable transaction. And with the right preparation, it doesn’t have to be a hurdle.

Lenders: Engage your appraisers early. Encourage borrowers to prepare thoroughly.

Business owners: Think like a buyer. Be transparent, be organized, and be ready to tell your story through your numbers.

Proper preparation ensures a smooth process, aligns expectations between lender and borrower, and mitigates the risk of loan denial.