Unlocking SBA 7(a) Loans: Business Valuation Explained

Government-guaranteed lending programs—especially those backed by the Small Business Administration (SBA)—play a crucial role in helping small businesses in the U.S. access commercial financing through local banks and credit unions. For many entrepreneurs, an SBA 7(a) loan is the key to obtaining capital for working capital, equipment purchases, commercial real estate, or even the acquisition of an existing business.

Often, the SBA loan guarantee is the deciding factor in whether a business owner can secure financing—or whether a seller can complete the sale of their business. Yet, many small business owners and prospective buyers remain unfamiliar with SBA lending requirements, particularly how business valuation influences loan approval.

What Role Does Business Valuation Play in SBA Lending?

In most SBA 7(a) loan scenarios, borrowers can finance more than just the value of a company’s tangible assets. This includes financing based on intangible assets such as goodwill—but how is that goodwill determined?

To comply with SBA Standard Operating Procedure (SOP) 50 10 8, the lender must obtain an independent business valuation from a qualified business appraiser. This appraisal estimates the fair market value of the business—including its goodwill—providing the foundation for underwriting the loan.

Understanding this valuation process is essential for:

  • Small business owners seeking SBA loans
  • Buyers purchasing an existing business
  • Sellers navigating a business exit
  • Lenders and advisors ensuring SOP compliance

Check out our library of SBA 7(a) business valuation articles and videos for insights into some of the most frequently misunderstood and most complex aspects of 7(a) business valuations.