How to review a business valuation report for an SBA loan
Short answer
A lender reviewing an SBA business valuation should confirm four things: the preparer is a Qualified Source who was independent and engaged by the lender; the scope matches the purchase agreement (asset or stock, assets included, assumed debt); the financial inputs match the documents verified against IRS transcripts; and the normalization and approach are reasonable and explained. Then compare the conclusion with the Business Purchase Price, because any excess must be equity and debt is capped at the value.
Valuation reviews often focus on the final number. Under SOP 50 10 8.1, the process around the number matters as much: who ordered it, who prepared it and what they relied on can each make a report unusable.
The review checklist
A. Eligibility of the report
- Engagement letter is with the lender, and the report says it was prepared for the lender.
- Preparer holds ASA, CBA, ABV, CVA or BCA; credential stated in the report; regularly paid for valuations.
- Independence: not part of loan production or approval; no relationship with buyer, seller or broker; no appearance of conflict. Ask for a written statement.
- Signed certification and conclusion of value present.
- Valuation date sensible relative to the financials and closing.
B. Scope
- Asset vs stock purchase matches the purchase agreement.
- Included and excluded assets match (cash, receivables, inventory, real estate, vehicles).
- Assumed liabilities identified.
- Standard of value stated (typically fair market value) and premise (going concern).
- Real estate excluded and separately appraised, unless special purpose property rules apply.
C. Inputs
- Financial years and interims used are the same ones in your file.
- Inputs tie to the documents verified against IRS transcripts; obtain the appraiser's source data as the SOP requires.
- If a QoE exists, its adjusted earnings and the valuation's earnings base reconcile.
D. Analysis
- Each normalization adjustment explained with evidence; owner comp replaced with market comp.
- Approaches considered and reasons for weighting; market data relevant to size and industry.
- Working capital assumptions consistent with the deal.
- Risk factors (concentration, key person, lease) reflected.
Red flags
- Report addressed to the buyer or seller, or "reliance letter" added after the fact.
- Conclusion exactly equal to the price with thin support.
- Earnings taken from a broker recast without reconciliation to returns.
- Comparable transactions from very different sizes or industries.
- Ignoring a known customer loss or lease expiry.
A worked review note
Illustration, not a real deal. A reviewer's note on a $1.9 million HVAC acquisition:
- Eligibility: CVA, engaged by the lender, independence statement signed. Pass.
- Scope: Report values a stock purchase; the purchase agreement is an asset purchase excluding cash and receivables. Revise.
- Inputs: Report uses internal statements; the 2025 revenue is $140,000 higher than the tax return and transcript. Explain or restate.
- Analysis: Owner pay add-back of $180,000 with no market replacement cost deducted. Revise: the business needs a general manager.
- Conclusion: $2.05 million, supports the $1.9 million price on its face, but likely to fall after the revisions above. Hold credit approval until revised.
Notice that the conclusion "supporting the price" was the least important line. The review's value came from the scope and inputs checks, which changed the earnings base.
When to order a second opinion
Most reports can be fixed through questions to the original valuer. A review by a second credentialed appraiser is worth the cost when the valuer won't engage with specific factual corrections, when the report's earnings can't be reconciled to the transcripts, or when the deal is large enough that a mistake would be expensive. Keep the review and the responses in the file alongside the original report.
After the review
Document your conclusions in the credit memo, including how any gap between value and price is covered with equity and that total debt is within the valuation. See sizing the loan to the valuation.
When the lender does its own valuation ($350,000 or less)
Under the version of SOP 50 10 8.1 with technical updates (effective October 1, 2026), a lender may perform its own valuation when the Business Purchase Price is $350,000 or less, unless there's a close relationship between buyer and seller. The August 14, 2026 issuance didn't include this option, so many summaries say every change of ownership needs a Qualified Source. Above $350,000, or with a close relationship, an independent Qualified Source valuation is required.
This is the clearest example of why the date and version of an SOP summary matters.
What changed between versions
| Version | Lender's own valuation allowed? |
|---|---|
| SOP 50 10 8 (effective June 1, 2025) | Yes, when the price less appraised real estate and equipment was $250,000 or less, unless buyer and seller were closely related |
| SOP 50 10 8.1 as issued August 14, 2026 | No in-house option in Appendix 15 |
| SOP 50 10 8.1 with technical updates, effective October 1, 2026 | Yes, Business Purchase Price ≤ $350,000, no close buyer-seller relationship |
Who can use it, and when it doesn't apply
Two conditions must both be true. First, the Business Purchase Price, meaning the contract price less the appraised value of any owner-occupied commercial real estate, is $350,000 or less. Second, there's no close relationship between buyer and seller. Family transfers, sales to employees with close personal ties, or deals between existing business associates are the situations where the second test tends to bite; when in doubt, document the relationship and use an outside Qualified Source. The option appears both in Appendix 15 and in the 7(a) Small and SBA Express summary of change-of-ownership modifications, which says an internal valuation may be obtained at the lender's discretion at that size.
Illustration, not a real deal. A buyer agrees to pay $420,000 for a small bakery, including the building the bakery occupies, which appraises at $110,000. Business Purchase Price: $420,000 - $110,000 = $310,000. The buyer has never met the seller before the listing. Both tests are met, so the lender may value the business itself; the building still needs its own appraisal under the real estate rules.
What an internal valuation should contain
The SOP doesn't prescribe a format for a lender's own valuation, but the file should be able to answer the same questions an outside report would. A sound internal memo covers:
- The Business Purchase Price calculation and the relationship test.
- Earnings used, sourced to tax returns and verified against IRS transcripts.
- Normalization adjustments, each with support, including market pay for the owner's role.
- The method (for example a capitalization of earnings or a market multiple) and the inputs chosen, with the reason for each.
- A conclusion that supports the price, or the equity needed to cover any gap.
- Who prepared it and confirmation they weren't the originating loan officer, where the lender has that separation.
When an outside valuation is still the better call
The option is permission, not an obligation. An outside Qualified Source is often worth the cost when the business has messy records, significant customer concentration, a seller who claims large add-backs, or an industry the lender rarely finances. A small deal that defaults is still a guaranty purchase review, and an independent report with a credentialed signature is easier to defend than an internal memo.
Using the option well
- Document the Business Purchase Price calculation (contract price minus appraised owner-occupied real estate).
- Document the absence of a close buyer-seller relationship.
- Apply a consistent internal method and keep the analysis in the credit file; the valuation still must support the price, and debt is still capped at it.
- Verify the source financials against the seller's IRS transcripts, as for any valuation.
- Keep the analyst independent of the loan's production where possible, for file defensibility.
If you'd rather not do valuations in-house, an outside report from a Qualified Source works at any size. See how OKtoLend's valuation works and Qualified Source rules.
Whichever route you take, the valuation still caps total debt, and any price above the value must be covered by equity.
Common questions
Does the lender need to agree with the conclusion?
The lender must analyze and discuss the valuation in the credit memo. If the reviewer finds the analysis unsupported, it should go back to the appraiser with specific questions rather than adjust the number itself.
What if the report omits the appraiser's credential?
The SOP requires the report to include the individual's qualifications and signed certification. Ask for a corrected report.
Should the valuation and QoE agree?
They answer different questions, but the earnings base should reconcile. If the QoE adjusts EBITDA materially after the valuation, ask the appraiser whether the conclusion changes.
Who should review the valuation at the lender?
Someone in credit or a dedicated review function, not the loan officer who originated the deal. The reviewer should be able to read financial statements and challenge add-backs.
Can the reviewer change the value?
No. The reviewer identifies issues and asks the valuer to address them. The conclusion remains the valuer's; the lender decides whether the file supports the loan.
Related guides
Sources
This guide explains rules and practice in plain English. It isn't legal, tax or credit advice, and SBA and IRS rules change. Check the current SOP, regulations and your lender's requirements before you rely on anything here. Examples with made-up businesses are illustrations, not real deals.