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Valuation Insights & Articles
Welcome to Valuation Insights & Articles, where Highland Global shares thought leadership, expert guidance, and commentary on the ever-evolving world of business valuation. Here, you’ll find practical insights tailored for SBA lenders, business owners, attorneys, and financial professionals. Topics include SBA 7(a) valuation standards, goodwill analysis, tax-related valuation, M&A strategy, litigation support, and valuation methodology best practices. Stay informed with clear, actionable content rooted in real-world experience and regulatory knowledge.
Special Purpose Properties in SBA 7(a) Lending
In the realm of Small Business Administration (SBA) lending, understanding the classification and appraisal of Special Purpose Properties is crucial. These properties present unique challenges due to their specific design and limited adaptability. This article explores the SBA's definition of Special Purpose Properties, the characteristics that categorize a property as such, clarifies why appraising these … Continue reading Special Purpose Properties in SBA 7(a) Lending
Distributions and the S Corporation: Understanding Their Role in Financial Statements
Misunderstandings about S corporation shareholder distributions often arise among business owners and non-accounting professionals, particularly the belief that distributions reported on a Schedule K-1 are business expenses. This confusion can distort perceptions of cash flow, profitability, and business valuation. This paper clarifies the nature of S corporation distributions and their impact on financial statements, including … Continue reading Distributions and the S Corporation: Understanding Their Role in Financial Statements
Maintenance Capital Expenditures in Business Valuations for SBA 7(a) Lending
Accurate estimation of maintenance capital expenditures (CapEx) is critical in business valuations for SBA 7(a) loan purposes, particularly when using the capitalization of earnings method. While EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a common valuation proxy due to its pre-debt, pre-tax simplicity, it excludes CapEx, a recurring cash outflow. This omission can … Continue reading Maintenance Capital Expenditures in Business Valuations for SBA 7(a) Lending
The Risks of Relying on Annualized Financials and Projections in SBA 7(a) Business Valuations
In SBA 7(a) loan underwriting, business valuations play a pivotal role in determining loan eligibility and appropriate risk mitigation. While projections and annualized financials can offer a forward-looking view of performance, they come with significant pitfalls—particularly when used as a basis for valuation without adequate historical context. The SBA’s Standard Operating Procedure explicitly requires lenders … Continue reading The Risks of Relying on Annualized Financials and Projections in SBA 7(a) Business Valuations
Business Valuations Under FIRREA, USPAP, and SBA SOP 50 10 8
Business valuations for SBA 7(a) and 504 loans, federally insured lending, and regulatory contexts must navigate the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), Uniform Standards of Professional Appraisal Practice (USPAP), and SBA SOP 50 10 8 (effective June 1, 2025). FIRREA governs real estate appraisals in business transactions, USPAP provides ethical and performance … Continue reading Business Valuations Under FIRREA, USPAP, and SBA SOP 50 10 8
Normalization Adjustments (Addbacks) in Business Valuations for SBA 7(a) Loans: Emphasis on Owner Compensation and Free Cash Flow
Normalization adjustments are essential in business valuations for SBA 7(a) loans, aligning historical financial performance with a hypothetical buyer’s expectations under the fair market value (FMV) standard. FMV, per IRS Revenue Ruling 59-60, is the price at which a property changes hands between a willing buyer and seller, neither under compulsion, with reasonable knowledge of … Continue reading Normalization Adjustments (Addbacks) in Business Valuations for SBA 7(a) Loans: Emphasis on Owner Compensation and Free Cash Flow
Estimating the Cost of Equity Capital for Private Company Valuation
In valuing closely held businesses for SBA 7(a) financing, determining an appropriate cost of equity is a critical step in the income approach. This white paper explores the application of the build-up method using current Kroll data, historical returns by asset class, and empirical investor return expectations. Additionally, it addresses practical challenges and offers recommendations … Continue reading Estimating the Cost of Equity Capital for Private Company Valuation
Understanding Capital Structure’s Impact on Business Valuation: A Guide for Bankers
In business valuations—especially those conducted for SBA 7(a) loan purposes or during transactions—confusion often arises when changes in capital structure affect the valuation results. This confusion intensifies when a deal shifts from an asset purchase to a stock purchase. Bankers and clients may ask, “Why does the value change if the business hasn’t changed?” To … Continue reading Understanding Capital Structure’s Impact on Business Valuation: A Guide for Bankers
Understanding the Long-Term Growth Rate in Business Valuation – Limits, Logic, and Economic Reality
In business valuation, the income approach, particularly the discounted cash flow (DCF) method, often employs a two-stage model: a discrete forecast period and a terminal value assuming perpetual growth. The long-term growth rate (TGR) or terminal growth rate projects free cash flows (FCF) beyond the forecast period. While seemingly minor, TGR significantly impacts valuation. Unrealistically … Continue reading Understanding the Long-Term Growth Rate in Business Valuation – Limits, Logic, and Economic Reality
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