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

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

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

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

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

A practical guide for SBA lenders to evaluate and normalize owner compensation in underwriting and valuations. Why Normalize Owner Compensation? Owners often underpay themselves for tax reasons or overpay to reduce net income. SBA valuations must reflect the cost a buyer would incur to replace the owner’s role at market wages. Improper salary adjustments can … Continue reading Owner Compensation Normalization Guide

Use this guide to determine whether a business is a transferable enterprise—or just a job with risk. Key Evaluation Questions Does the business generate cash flow *without* the owner working full-time? Are there employees, systems, and processes in place? Would a buyer need to work 60+ hours/week to maintain current revenue? Is there documented goodwill, … Continue reading Job vs. Business Guide

Use this checklist to evaluate the key risk factors and underwriting considerations in SBA franchise deals. Step 1: Verify Franchise Agreement Terms Is there a valid and assignable franchise agreement? Are there transfer fees? Are seller's royalties and advertising fees consistent with current franchise disclosure document? What are buyer approval and training conditions? Step 2: … Continue reading Franchise Underwriting Guide

In the context of SBA 7(a) lending, the business valuation standard used in underwriting is more than a technicality—it affects the defensibility of the loan, regulatory compliance, and ultimately portfolio performance. This guide explains the critical distinction between Fair Market Value (FMV) and Strategic Value, and why SBA lenders must ensure that valuations adhere to … Continue reading Fair Market Value vs. Strategic Value: A Practical Guide for SBA 7(a) Lenders

Use this guide to evaluate whether earnings multiples in a valuation report are applied correctly for SBA lending purposes. ✅ Checklist: Applying Multiples Correctly Was the cash flow or earnings calculation adjusted for reasonable officer compensation, market rent, and non-recurring items? Is the multiple supported by **market comps** from comparable private transactions, not broker hearsay … Continue reading Earnings Multiples Application Guide