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Business Valuation Resource Guide for Financial Advisor Lending

Whether you are seeking a loan for expansion, acquisition, or a partner buyout, you will need plenty of documents, and that often includes a business valuation. At Salt Creek, we use the SBA 7(a) loan program which comes with a government guarantee. It’s this guarantee that helps us offer such competitive rates and terms for financial advisor loans. However, using the 7(a) program does come with additional requirements and guidelines that a lender must adhere to, including specific guidelines on ordering business valuations and appraisals.

We receive a lot of questions regarding valuations, so we put together this quick resource guide which will cover frequently asked questions that often come our way. This guide will primarily focus on financial advisor practice acquisition deals but will also cover SBA loan requirements and Salt Creek’s policies on valuations.

Business Valuation Requirements

Let’s start with SBA requirements regarding business valuations. There are numerous pages of the “SBA SOP” (Small Business Administration Standard Operating Procedures) dedicated to appraisals and business valuations, but we’ll try and stick to the most relevant issues that need to be met.

1. If the purchase price is over $250,000 a lender must order a third-party business valuation from a “qualified source.” What is a qualified source?

A “qualified source” is an individual who regularly receives compensation for business valuations and is accredited by one of the following recognized organizations:

1. Accredited Senior Appraiser (ASA) accredited through the American Society of Appraisers
2. Certified Business Appraiser (CBA) accredited through the Institute of Business Appraisers
3. Accredited in Business Valuation (ABV) accredited through the American Institute of Certified Public Accountants
4. Certified Valuation Analyst (CVA) accredited through the National Association of Certified Valuation Analysts
5. Accredited Valuation Analyst (AVA) accredited through the National Association of Certified Valuation Analysts
6. Business Certified Appraiser (BCA) accredited through the International Society of Business Appraisers

2. What if my valuation isn’t from a qualified source?

The valuation firm must have one of the accreditations above for a lender to use it with SBA financing. So you have a valuation in hand and the firm does not have the proper accreditations a new valuation would need to be ordered. Be sure and select a valuation firm that is SBA eligible as it could save you money in the long run.

3. Who orders the valuation?

The lender must order the valuation. That does not mean a lender cannot use a valuation that has already been ordered by the buyer or seller, but it would require it to be reassigned to the lender. Depending on the valuation firm that performed the valuation it might involve a small fee to reassign the valuation.

4. Does the SBA require a valuation of the buyer’s firm?

No, but Salt Creek does like to see a valuation on both the buyer and the seller when there is an acquisition and the purchase price is over $500,000. This allows us to determine the Loan-to-value (LTV) based on the combined value of the practices. We also like to see a valuation of the borrowers practice on non-acquisition loans over $500,000 that involve working capital. We do have more flexibility on the source of the valuation as we are not held to the standards of the SBA SOP. Often we can use valuations performed by your broker-dealer.