Use this guide to evaluate whether earnings multiples in a valuation report are applied correctly for SBA lending purposes.

✅ Checklist: Applying Multiples Correctly

• Was the cash flow or earnings calculation adjusted for reasonable officer compensation, market rent, and non-recurring items?
• Is the multiple supported by **market comps** from comparable private transactions, not broker hearsay or public company data?
• Has the multiple been risk-adjusted based on size, industry, customer concentration, and owner reliance?
• Is the valuation using an appropriate method for the business type (Income Approach vs Market Approach)?

🚩 Red Flags

• Blanket use of ‘3x’ or ‘4x’ with no sourcing or rationale.
• No mention of how comps were selected or filtered.
• Earnings not adjusted for reality (i.e., fantasy addbacks).

SBA SOP Tip

If an unsupported multiple is applied to inflated or unadjusted earnings, the resulting value is not reliable.