Use this guide to evaluate the reliability and appropriateness of financial projections used in underwriting and business valuations for SBA lending.

When Are Projections Acceptable?

• When used to support buyer expectations when the business has limited operating history or extenuating circumstances
• When based on realistic, documented assumptions and corresponding business plan
• When tied to actual investment (e.g., expansion, equipment)
• When historical performance supports future outlook
• When based on generic buyer assumptions not strategic considerations/improvements to cash flow

Red Flags in Valuation Reports

• Valuation is based entirely on next year’s forecast
• Multiples applied to future cash flow or revenue
• No reconciliation with historical performance
• Projections assume drastic growth without explanation

Questions for Review

• Is the growth rate justified by historical data?
• Are expense levels reasonable or overly optimistic?
• Does the buyer have the experience or capital to achieve these projections?
• Has the appraiser excluded buyer specific considerations?

SBA SOP Reminder

Valuations for SBA loans must be based on fair market value using sound, supportable approaches—not speculative earnings. Projections should never replace historical performance as the primary basis for value.

Lender Tip

Use projections to stress test repayment—not justify inflated valuations.