Evaluating the risk and return of a business acquisition is central to SBA 7(a) underwriting. Closely held or family-controlled businesses present unique financial dynamics: opaque markets, limited liquidity, and owner concentration. These realities significantly alter their risk-return profile compared to publicly traded companies. This guide explores how SBA lenders can evaluate such businesses rigorously, using … Continue reading Understanding Risk and Return in Closely Held Businesses: A Guide for SBA 7(a) Lenders
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Lender Insights: Checkpoints for SBA Underwriting
Use these short callouts as quick reminders or margin notes to help identify key risks and reinforce SBA lending best practices. Lender Insight #1 Analyze a 3-year break-even analysis and working capital needs under downside scenarios. This helps evaluate business feasibility and funding sufficiency. Lender Insight #2 If only one valuation method is used in … Continue reading Lender Insights: Checkpoints for SBA Underwriting
Working Capital Guide
Use this guide to evaluate whether working capital (WC) has been properly addressed in a business valuation and underwriting for SBA lending purposes. Step 1: Identify WC Components Accounts Receivable (AR) Inventory Accounts Payable (AP) Accrued expenses Step 2: Evaluate Treatment in Valuation Is WC included in the purchase price or treated as a separate … Continue reading Working Capital Guide
Mapping The 7 Deadly Sins of Valuation to SBA SOP & Underwriting Concerns
Use this matrix to connect valuation red flags with SBA SOP requirements and underwriting risk categories. Deadly SinSBA SOP 50 10 8 / Underwriting ConcernWhy It Matters1. Confusing Fair Market Value with Strategic ValueSBA requires FMV standardStrategic value misleads stakeholders and may result in overvaluation unsupported by market participants.2. Incorrect Adjustments to Financial StatementsAffects global … Continue reading Mapping The 7 Deadly Sins of Valuation to SBA SOP & Underwriting Concerns
Strategic Creep Review Tool
Use this tool to identify when a purchase price or business valuation has drifted from Fair Market Value (FMV) into buyer-specific strategic assumptions. FMV vs. Strategic Value Recap FMV = Value to a hypothetical buyer in an open market Strategic Value = Value to a specific buyer based on synergies or integration Red Flag Phrases … Continue reading Strategic Creep Review Tool
Rules of Thumb Red Flag Guide
Use this guide to identify risky valuation shortcuts based on rules of thumb instead of proper analysis. What Are Rules of Thumb? Simple heuristics like '3x earnings' or '1x revenue' used to estimate value without detailed analysis. Often based on anecdotal deals or broker norms—not on real market data or normalized financials. Why They’re Dangerous … Continue reading Rules of Thumb Red Flag Guide
Rent Normalization Memo Template
Use this memo format to document market rent adjustments in underwriting and business valuations involving related-party real estate. Purpose To adjust reported rent expenses to reflect fair market lease rates, ensuring accurate valuation of the business under SBA standards. Deal Summary Business Name: ___________________________Property Address: __________________________Valuation Date: ____________________________ Current Rent Situation Monthly Rent Paid: $_________ … Continue reading Rent Normalization Memo Template
Top 10 Red Flags in SBA Underwriting
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 … Continue reading Top 10 Red Flags in SBA Underwriting
Projections Risk Guide
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 … Continue reading Projections Risk Guide
Personal vs. Enterprise Goodwill Guide
Use this guide to assess whether goodwill in underwriting and the valuation is truly transferable to a buyer—or tied to the seller personally. Definitions Personal Goodwill: Tied to the seller’s relationships, skills, reputation, or presence. Not easily transferable. Enterprise Goodwill: Associated with systems, staff, location, brand, or contracts. Transferable to a new owner. Why It … Continue reading Personal vs. Enterprise Goodwill Guide
Highland Global Business Valuations 