The SBA (Small Business Administration) loan programs have become even more prominent over the past few years as companies continue to recover from the pandemic and battle continuing economic and sustainability issues. For those who have thrived in spite of these challenges, the need for favorable loan conditions to handle growth needs, such as working capital access, is critical to future success.

While working with your primary financial institution, who should act as the intermediary for your SBA loan application, make sure you understand all of the approval requirements, including the need to obtain appraisals. Depending on the type of company you own, the size of the loan request, and available collateral such as real property, equipment, and liquidity (cash and receivables), you may need to engage with independent appraisers to provide the SBA with accredited, certified valuation reports for any or all of these components to your business.

During the application process with your lending institution, gain an understanding of these requirements early on as it will take time to find the best appraisers for the job. Turnaround time, responsiveness, and flexibility should all be factors to consider when engaging a valuation expert. Don’t sacrifice any of these variables based on a cheaper option, as the decision may come back to bite you. The valuation results may be poorly determined, the process may drag out interminably, and the SBA could even deny the validity of the reports if you engage with an inexperienced, unprofessional appraiser.

The SBA may require only a tangible asset appraisal, for your building, land, and equipment. Other scenarios would reveal a need for an overall business valuation, which would consider all the assets of the company, as well as an income and market analysis.

In either case, the more prepared you are at the outset of the process, the better chance of a satisfactory result and efficient approval process. Obtaining the capital you need at the right time can save you thousands of dollars in both the short and long term, while the application and approval process can be overwhelming. The best appraisers understand all this and will work with you to ensure they facilitate their role in the process, as opposed to hindering it. Don’t forget to rely as much as possible on your direct lender, as they may be able to recommend the right professionals to work with.

If there's anything certain in business, it's that dealing with the government is probably going to take longer and be more complicated than you'd like. There are, however, several agencies that help small businesses, including the Small Business Administration (SBA) and the United States Department of Agriculture (USDA). These agencies offer popular loan programs with great rates and flexibility while working with your local banks to get you the financing you need to grow your business. Local banks oftentimes receive guarantees from the SBA and USDA that loans will be paid back to the lender if the business fails. For most of the loan programs, these federal agencies require a business valuation be performed as part of the approval process.

How can a business valuation help secure an SBA loan?

• A business valuation performed by a certified business appraiser ensures that the valuation has been performed independently with no bias while using accepted methodologies. This means that you will receive an accurate picture of your company's value and the SBA understands the loan they are guaranteeing is being measured against your company’s current worth.
• Business owners sometimes make the mistake of basing their company's value on tax accounting records. Though these documents are accurate and useful, they don't specifically reflect the appraised value of the business. A review and analysis of your tax returns and financial statements over a 3-5 year period will be better suited to properly value your business.
• Having an appraisal performed also helps you understand what condition your company is in. There won't be any surprises when you go to pay back the loan and realize there's an issue with your cash flow, industry position, expected income or similar concerns. You'll know where your company is strong and where it needs improvement. A business appraisal gives you a solid look at how your company is performing and where you need to invest more time and effort.
• SBA guidelines allow lenders to perform their own company valuation if a loan is for less than $250,000 but requires an independent certified appraisal if the loan is higher. You may want to complete a business valuation regardless if you believe the bank doesn't have a solid grasp of your business or industry and is limiting the loan terms, or you just decide it prudent for other business considerations.

By having a business appraisal performed on your company, you're doing more than just ticking off a box on a checklist, you're finding out valuable information about the health of your company's financial situation. Business Valuation Specialists is ready to help you.

If you're getting ready to apply for a loan through the Small Business Administration (SBA), have you had the opportunity to get all of your paperwork in order yet? If you haven't, you may want to consider SBA Loan Business Appraisal. Why? When you go into the loan process with solid documentation of your company's value, it becomes much easier to get through the entire process as seamlessly as possible. Here's a quick look at the reasons behind why having a business appraisal performed on your business can help improve your odds of approval for an SBA loan.

How Can an SBA Loan Business Appraisal Help Your Odds of Approval?

When you have a business appraisal performed for SBA loan purposes, you're essentially having an independent third party verify the value of your company. This provides the bank or financial institution that you're working with proof of your company's value, whether you're purchasing a new business, refinancing to improve your company's footing or securing a loan to expand your operations. Working with a certified business appraiser ensures that the methodologies that they use have been tested for a wide range of reasons, including financial decisions.

A certified business valuation specialist takes a solid look at your company's financial background, your position in the marketplace, your reputation for innovation in the industry, your competition, your reputation in the community and many other aspects. They consider how your business stacks up against the average, then use that information to determine the value of your company. This is handled through a series of complex calculations that have been tested in a wide range of circles, including financial institutions, purchasing or selling decisions, tax appeals, insurance claims and courts of law, among others.

Once the business valuation specialist has gathered all of this information, they're able to compose the entire body of information into a simplified, standardized report that conveys how these aspects impact your company's overall value. This information, when provided to your financial institution, delivers verifiable proof of your company's value. Because it has been prepared by someone with experience in the standardized methodologies used to calculate business value, the report stands up to strong scrutiny and therefore is usually accepted as proof of value above and beyond any documentation you can otherwise provide.

However, that's not the end of the usefulness of your business valuation report. Once the loan has been secured, you can use the report for any number of other purposes down the road. It can be used to verify your company's average income if you have to shut down due to a disaster and make an insurance claim. It stands as proof of value if you need to appeal a bad tax assessment. It documents your company's worth if you become embroiled in a court case. There are a wide range of purposes for a business appraisal that reach far beyond simple loan approval.

When you get an SBA Loan Business Appraisal, you're able to provide solid documentation to help prove the value of your business. Working with a certified business valuation specialist means that your overall value calculation will be performed using standardized methodologies that are recognized and respected in a wide range of circles, including financial institutions. This helps make your SBA loan approval process go much more smoothly than it may otherwise, reducing the need to provide additional documentation that may hold up the process.