Mainstream headlines and investment pitches frequently highlight multiples from public companies, private equity-backed platforms, or high-growth sectors like SaaS, where enterprise-scale premiums and optimistic growth projections push EV/revenue multiples into the 5–8× range and EV/EBITDA to 8–15× or higher. For instance, the S&P 500’s average EV/EBITDA often hovers around 10–16×, reflecting benefits from low risk, operational scale, liquidity, and financial transparency.

However, these figures are fundamentally mismatched for the small, privately held businesses typically financed through SBA 7(a) loans—often owner-operated firms with revenues under $10 million. Real-world transaction data for these businesses reveals significantly lower multiples, helping SBA lenders set realistic expectations and avoid overvaluation risks in loan underwriting.

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Why Private Business Multiples Are Lower

Private small businesses trade at discounted multiples compared to public or larger private peers due to inherent structural and risk differences. Here are the key reasons:

1. Illiquidity and Marketability Restrictions
   Private companies lack active markets for their shares, making ownership stakes difficult to sell quickly or without significant friction. This illiquidity often results in marketability discounts of 20–40%, suppressing observed multiples relative to public comparables.
2. Size & Risk Premiums
   Smaller businesses face elevated risks, including customer concentration, owner dependency, and limited diversification, which demand higher required returns from buyers. Studies indicate average EBITDA multiples for private firms may be significantly below those of comparable public peers, with additional size premiums further widening the gap.
3. Limited Transparency & Standardization
   Unlike public companies with audited, publicly available financials, private firms often rely on unaudited statements, leading to greater variability in valuations. Adjustments for owner compensation, normalized cash flows, and discretionary expenses are common, typically resulting in lower multiples.
4. Smoothed or Outdated Valuations
   Private valuations, especially in M&A or private equity contexts, may lag real-time market shifts, often based on historical comps rather than current high valuations. This creates a conservative bias in reported multiples.
5. Scale & Buyer Universe
   Public multiples are driven by institutional investors and large platforms with growth synergies. In contrast, small business deals involve local buyers, individual operators, or strategic acquirers without the same pricing leverage.

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Contrast: Public vs. Private Multiples

Segment	Typical EV/Revenue	Typical EV/EBITDA
Public companies (S&P 500)	~1×–3×	~8×–16×
SMB private transactions (< $5M revenue)	~0.3×–1.0×	~2×–5×

Why the discrepancy matters for SBA lenders: Brokers or sellers quoting public-comp multiples (e.g., “your business is worth 5× revenue”) can create inflated expectations for local, owner-operated firms. This is particularly relevant for SBA-eligible businesses with limited scale, stable but modest margins, or high owner involvement, where overvaluation could lead to loan defaults or inadequate collateral coverage.

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Translating the Differences

• Public comps emphasize scale, liquidity, high-growth expectations, and institutional investor dynamics.
• Private small-business deals reflect actual transaction behavior, incorporating real-world risks like owner dependency and cash flow variability.
• In practice, private multiples are grounded in empirical transaction data rather than volatile stock prices.

Recent analyses of private-market small businesses (under $50M revenue, <$5M EBITDA) show EV/EBITDA multiples typically clustering between 2.5×–3.5× for healthy owner-operated firms, and 0.3×–1.0× for revenue multiples—aligning closely with SBA loan profiles.

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While this article focuses on multiples to highlight the disconnect between public and private markets, it’s worth emphasizing that multiples are not the gold standard of valuation. At best, they are empirical shortcuts—useful heuristics based on what other buyers have paid. But a business’s true value lies in the present value of its future net free cash flows, adjusted for the risk of achieving those cash flows.

This is the cornerstone of the income approach to valuation, which estimates what a financial buyer would be willing to pay today in exchange for future cash flows—discounted back at a rate appropriate for the business’s risk profile. That means looking at normalized financials, realistic CapEx needs, working capital requirements, and owner compensation, all within the context of the company’s operations and industry.

The valuation multiples we’ve discussed—and those compiled in our Valuation Multiple Cheat Sheet for SBA Lenders—are best used to cross-check whether a conclusion falls within a reasonable range based on comparable deals. But they do not replace a rigorous, defensible valuation based on actual earnings power.

Lenders, brokers, and buyers should be cautious: relying too heavily on multiples—especially inflated ones drawn from public markets or anecdotal broker quotes—can lead to overvaluation, under-collateralization, and credit exposure. Always tie back to risk, return, and cash flow.

Tips for SBA Lenders and Practitioners

1. Prioritize Private Transaction Data: Rely on private comps or your institution’s valuation experience—public multiples are often skewed upward and rarely applicable to SBA-sized deals.
2. Adjust for Key Attributes: Factor in recurring revenue, margin quality, customer diversification, or owner reliance when applying multiples to ensure accurate risk assessment.
3. Identify Outliers: Flag transactions exceeding these ranges; investigate if premiums are justified (e.g., exceptional growth, strong branding, or strategic fit) to avoid over-lending.
4. Use Heuristics Cautiously: Document all assumptions and adjustments, and cross-reference with tools like DealStats or BizBuySell for SBA-compliant estimates.

These practices help mitigate underwriting risks and align loan amounts with realistic business values.

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Final Reflection

While public-company multiples may grab attention with their allure, they frequently misrepresent the realities for small business owners and SBA lenders. Privately held firms, especially those qualifying for SBA financing, lack the advantages of liquidity, scale, and transparency that inflate public valuations—resulting in substantially lower multiples in actual deals. By understanding this gap, SBA lenders can foster more accurate valuations, better manage credit risk, and support sustainable small business growth during underwriting and negotiations.