Use this guide to spot issues that may compromise SBA loan eligibility or underwriting integrity.

Strategic Value Posed as Fair Market Value

Purchase price based on buyer-specific synergies or strategic premiums rather than independent third-party FMV standard.

Excessive or Unsupported Add-Backs

Owner compensation, non-recurring expenses, or personal items inflated or unverified.

Lack of Source Documentation

Financials not supported by tax returns, bank statements, or CPA-reviewed records.

Unrealistic Financial Projections

Hockey-stick revenue growth, implausible margins, or no downside scenarios considered.

Discount Rate and Cash Flow Mismatch

WACC applied to equity cash flow, or equity rate used for pre-debt metrics.

No Break-Even Analysis

Missing analysis of when the business will cover costs and generate sustainable returns.

Global Cash Flow Used Instead of Business-Specific Free Cash Flow

Underwriting justification of purchase reflects personal income of owner rather than business performance.

Overreliance on or Inappropriate Use of Market Comparables

Market data lacks transparency, may not reflect arm’s-length conditions, or isn’t consistent with capitalization of earnings. Use caution if comps are presented as primary support without income-based validation.

No Justification for Selected Valuation Method(s)

Only one method used without explanation of why others were excluded. Appraisals should articulate why the selected method is most appropriate and reconcile results when applicable.

Missing Statement of Assumptions and Limiting Conditions

No formal disclosure of what the appraiser assumed or excluded; increases exposure.

Tip for Lenders

When in doubt, ask for clarification, supporting schedules, or a second opinion. A questionable valuation can result in loan denial, SBA repair, or personal liability.