SBA 7a Business Valuation Myths

35 Business Valuation Myths Every SBA Lender Should Know

In the world of SBA 7(a) lending, understanding business valuation is essential — and misunderstanding it can be costly. From misapplying earnings multiples to overestimating goodwill or ignoring normalization adjustments, even well-meaning lenders can fall for common myths that jeopardize compliance with SBA SOP 50 10 8 and increase the risk of guaranty repair or denial. This blog series unpacks 35 of the most common valuation myths in SBA lending, breaking down each one with clear, lender-focused insights. Whether you’re reviewing an independent appraisal or screening a deal pre-LOI, these posts will help you recognize red flags, ask better questions, and protect your portfolio.

📚 Valuation Myth: You Can Just Average the Three Approaches

~ Certified Business Appraiser

The Myth:Use the income, market, and asset approaches — then simply average them. The Reality:Different approaches carry different relevance depending on the company’s circumstances. Weighing them equally can misrepresent the most accurate indicator of value. Why It Matters:Incorrect weighting can mislead SBA lenders, buyers, and sellers about true economic reality. Practical Tip:Reconcile approaches thoughtfully — … Continue reading 📚 Valuation Myth: You Can Just Average the Three Approaches

📚 Valuation Myth: Strategic Buyers Set Fair Market Value

~ Certified Business Appraiser

The Myth:If a strategic buyer is willing to pay more, that sets fair market value. The Reality:Fair Market Value (FMV) is based on a hypothetical financial buyer — not a synergistic or strategic buyer who sees special value others wouldn’t. Why It Matters:Confusing strategic premiums with FMV can result in misleading valuations for loans, taxes, … Continue reading 📚 Valuation Myth: Strategic Buyers Set Fair Market Value

📚 Valuation Myth: Bankability Equals Value

~ Certified Business Appraiser

The Myth:If the lender approves the deal, the business must be worth the price. The Reality:Loan approval focuses on repayment ability and risk tolerances — not necessarily true economic value. Bankability doesn’t automatically confirm fair market value. Why It Matters:Confusing financing approval with valuation quality can lead to overpriced acquisitions and unsupported loans. Practical Tip:Always … Continue reading 📚 Valuation Myth: Bankability Equals Value

📚 Valuation Myth: Revenue Multiples Are Universal

~ Certified Business Appraiser

The Myth:You can apply a standard revenue multiple across all industries. The Reality:Revenue multiples vary significantly depending on margins, risk, industry dynamics, and growth potential. What works in SaaS, for example, doesn’t work for manufacturing or retail. Why It Matters:Applying the wrong multiple can lead to huge valuation errors — especially in SBA lending and … Continue reading 📚 Valuation Myth: Revenue Multiples Are Universal

📚 Valuation Myth: Sellers Don’t Need Valuations

~ Certified Business Appraiser

The Myth:Only buyers need a business valuation. The Reality:Sellers benefit even more from accurate valuations. A solid valuation helps set realistic expectations, improves negotiation leverage, and prepares sellers for buyer scrutiny. Why It Matters:Sellers who overestimate value often face failed deals, delayed closings, or steep price reductions. Practical Tip:Get a professional valuation before marketing your … Continue reading 📚 Valuation Myth: Sellers Don’t Need Valuations

📚 Valuation Myth: Brand Always Adds a Premium

~ Certified Business Appraiser

The Myth:If you have a brand, your business is worth more. The Reality:Brand recognition only boosts value if it actually translates into cash flow. A well-known but unprofitable brand may not command any premium at all. Why It Matters:Valuations should measure brand strength by results — not reputation alone. Practical Tip:Quantify brand value based on … Continue reading 📚 Valuation Myth: Brand Always Adds a Premium

📚 Valuation Myth: Asset Sales Don’t Require Valuations

~ Certified Business Appraiser

The Myth:When selling just the assets, you don’t need a full business valuation. The Reality:Even asset sales often include goodwill/intangible assets — all of which require formal valuation analysis, especially for SBA loans and tax compliance. Why It Matters:Ignoring non-tangible value can trigger tax issues, deal disputes, and underwriting gaps. Practical Tip:Evaluate total enterprise value … Continue reading 📚 Valuation Myth: Asset Sales Don’t Require Valuations

📚 Valuation Myth: 2019 Financials Are Still Relevant Forever

~ Certified Business Appraiser

The Myth:Pre-COVID numbers are the true benchmark for valuation. The Reality:Markets have shifted permanently post-2020. Buyers, lenders, and valuators prioritize current, sustainable performance over historical pre-pandemic results. Why It Matters:Using outdated financials risks overvaluing businesses that haven’t recovered or adapted. Practical Tip:Focus your valuation on proven recovery trends — not just historical highs.

📚 Valuation Myth: CapEx Doesn’t Matter in Valuation

~ Certified Business Appraiser

The Myth:Maintenance capital expenditures don’t affect value. The Reality:Ignoring CapEx inflates free cash flow and overstates value. Every business has recurring investment needs — whether it's equipment, vehicles, or tech infrastructure. Why It Matters:Failing to account for CapEx misleads buyers and lenders about long-term sustainability. Practical Tip:Always subtract normalized CapEx from cash flow.

📚 Valuation Myth: Book Value Sets a Minimum Value

~ Certified Business Appraiser

The Myth:A business is always worth at least its book value. The Reality:If the business isn’t profitable, or if its assets are illiquid or obsolete, the true value may fall below book. Buyers pay for income potential — not just recorded assets. Why It Matters:Using book value as a floor can lead to overvaluation — … Continue reading 📚 Valuation Myth: Book Value Sets a Minimum Value