Ordering an SBA business valuation: what the engagement should say
Short answer
Under SOP 50 10 8.1 the lender must request the valuation and the report must be prepared for the lender. A good order names the lender as client, confirms the appraiser is a Qualified Source and independent, and gives a scope that states asset or stock purchase, exactly what's included (inventory, receivables, equipment, intangibles), any assumed debt, whether real estate is excluded, and attaches the purchase agreement and the financials verified against transcripts.
The SOP explains why the lender orders the valuation: so the appraiser can identify the scope of work appropriately. A vague order produces a report that doesn't match the deal. Here's what to put in it.
Order template
Template
Client and intended use
Client: [Lender legal name]. Intended use: SBA 7(a) change-of-ownership underwriting under SOP 50 10 8.1. Intended user: the lender (and SBA in oversight).
Appraiser qualifications and independence
Credential (ASA, CBA, ABV, CVA or BCA); regularly compensated for business valuations; written confirmation of no role in loan production or approval and no relationship with buyer, seller, broker or their affiliates.
Transaction
Buyer, seller, business, NAICS. [Asset / stock] purchase. Contract price [$]; owner-occupied real estate [included at appraised $ / not included]; Business Purchase Price [$].
Included and excluded
Inventory, receivables, cash, equipment and vehicles, intangibles, licenses, non-compete; liabilities assumed [list].
Standard and date
Fair market value, going concern premise, valuation date [date].
Documents provided
Purchase agreement or LOI; three years of financials and returns; interims; transcript-verified data; debt schedule; lease; customer list summary; QoE (if any).
Deliverable
Signed report with conclusion of value, qualifications and certification; statement on whether it supports the Business Purchase Price; source data provided to the lender.
Timing
Order once the LOI defines the deal. Real estate appraisals and any QoE often run in parallel. If a QoE will be done, decide whether the appraiser should wait for its adjusted earnings or reconcile afterwards; either way, the two should agree before the credit memo is final.
OKtoLend's valuation is built around this order format. See how it works.
Who should place the order
The SOP requires the valuer to be independent of the loan production function, so the cleanest setup is that someone outside production places the order: a credit administrator, a vendor management team or a closing department. The loan officer supplies the deal facts; they don't choose the valuer for their own deal or talk value with them. Smaller lenders without that separation can still document it: record who selected the valuer, why, and that the loan officer had no part in the conclusion.
Five order mistakes that cost a week each
| Mistake | What happens | Fix |
|---|---|---|
| Ordering before the LOI defines the deal | Valuer guesses at scope; report has to be redone when terms change | Order once there's a signed LOI or purchase agreement |
| Contract price used instead of Business Purchase Price | Real estate double-counted in the business value | Carve out owner-occupied real estate at appraised value in the order |
| Asset vs stock not stated | Wrong liabilities included or excluded | State the structure and list assumed debt |
| Partial document package | Valuer waits, then asks for the rest | Send everything in the template at once |
| No mention of a QoE | Valuation uses earnings the QoE later cuts | Tell the valuer a QoE is coming and share it when it arrives |
Keeping the order clean as the deal changes
Deals move after the valuation is ordered: price drops after diligence, working capital is added, real estate is pulled out into a separate purchase. Each change should go to the valuer in writing through the person who placed the order, with a note on whether it changes the scope. A valuation that reflects a superseded version of the deal is one of the most common file defects found later, and it's entirely avoidable.
After the report arrives
- Check the report against the order: client, scope, standard, date.
- Obtain the financial information the valuer relied on and verify it against the seller's IRS transcripts, as the SOP requires.
- Reconcile the valuer's earnings with the lender's DSC cash flow and, on $3 million-plus deals, the QoE.
- Confirm the conclusion supports the Business Purchase Price; if not, the gap must be equity.
For the review itself, see how to review a business valuation report.
How long the valuation takes
A business valuation takes as long as it takes to get complete, consistent records and answers. The analysis itself is rarely the slow part; waiting for documents, reconciling statements that don't match tax returns, and back-and-forth with the seller are. We don't quote a standard turnaround because it depends on the file. For SBA deals, order the valuation early, send everything at once, and expect more time on deals that also need a QoE or real estate appraisal.
What speeds it up
- Three years of tax returns and financial statements, plus a current interim, in one send.
- A purchase agreement or LOI that states assets vs stock and what's included.
- An add-back schedule with support for every item.
- A named seller contact who answers within a day.
- Signed IRS Form 4506-C so the lender can pull transcripts.
The sequence on a typical SBA acquisition
The valuation is one of several reports running at once, and the order matters more than the speed of any one of them.
- LOI signed: the deal is defined well enough to scope the valuation.
- Lender orders third-party reports: valuation, QoE (at $3 million or more), real estate appraisal if any.
- Document package to the valuer: often the longest wait.
- Valuer's questions and management interview.
- Draft and lender review: scope and inputs checked; earnings reconciled with transcripts and the QoE.
- Final report: conclusion feeds loan sizing; any gap to price becomes an equity question.
Where a QoE is required, the valuation should use QoE earnings, which means the valuer either waits for the QoE or revises after it. Running both off the same document package, with the two providers talking through the lender, avoids a second round.
Why the lender, not the buyer, controls the clock
Because the valuation must be requested by and prepared for the lender, the buyer can't commission it early and hand it over. What buyers can do is make the lender's job fast: choose a lender early, get the seller's documents organized before the order goes out, and avoid changing the deal after the valuation starts. A change from stock to asset purchase, a price change or pulling real estate out of the deal can each send the valuer back to the start.
Signs a valuation is about to stall
- The seller's accountant hasn't been told a valuation and QoE are coming.
- Interim statements are more than a couple of months old.
- The add-back schedule is a list of numbers with no documents behind it.
- Nobody can say whether the deal is an asset or stock purchase.
- The real estate is "probably" being bought separately.
Any one of these is worth fixing before the order goes out, because the valuer will raise it anyway and the clock stops while it's resolved. Lenders who send a short checklist to the buyer and seller at the LOI stage, listing exactly what the valuer will ask for, usually see the shortest turnarounds; the analysis itself rarely takes as long as gathering the inputs.
What slows it down
- Statements that don't tie to tax returns.
- Large cash sales or personal expenses run through the business.
- Multiple entities or real estate held separately.
- Price changes mid-stream that change the scope.
See the full SBA loan timeline.
What buyers can do this week
If you're a buyer with a signed LOI, three things move the valuation forward more than anything else: ask the seller to authorize their accountant to talk to the lender's valuer and QoE provider; get the seller to sign IRS Form 4506-C promptly so the lender can request transcripts; and gather the lease, key customer contracts and the add-back support into one folder. None of it requires the lender to have started, and all of it is on the valuer's first request list.
Common questions
Can the buyer or broker order the valuation on the lender's behalf?
The SOP requires the valuation to be requested by and prepared for the lender. The lender should sign the engagement, even if the buyer pays the fee through the lender.
What if the deal terms change after the order?
Update the scope in writing. A valuation based on a different asset list or structure may not support the final Business Purchase Price.
Should the order include the price?
Yes. The valuation must say whether it supports the Business Purchase Price, so the appraiser needs the agreed price and how it's calculated.
Can the buyer send documents directly to the valuer?
Often yes, to save time, but the lender should remain the client and receive copies; communications about value should run through the lender.
Can the valuation be rushed?
Sometimes, at extra cost, but a rushed valuation with open questions doesn't help the lender. Clean records save more time than a rush fee.
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.