The follow excerpt is from the Small Business Administration’s latest SOP Requirements for Business Appraisals. The May 1, 2015 version lists the following requirements for business appraisals:
Business Appraisal Requirements – Change of Ownership
Determining the value of a business (not including real estate which is separately valued through a real estate appraisal) is the key component to the analysis of any loan application for a change of ownership. An accurate business appraisal is required because the change in ownership will result in new debt unrelated to business operations and potentially the creation of intangible assets. A business appraisal assists the buyer in making a determination that the seller’s asking price is supported by an independent qualified source.
The SOP defines a “qualified source” as being an individual who has at least one of a select number of professional designations from its associated recognized organization. All the valuation professionals at Advent Valuation Advisors have one or more of these designations and are eminently qualified to provide business appraisals that conform with the SBA’s requirements. Uniquely, one of our professionals has nearly 20 years of banking experience.
- In order for the individual performing the business appraisal to identify the scope of work appropriately, the business appraisal must be requested by and prepared for the lender.
- The scope of work should identify whether the transaction is an asset purchase or stock purchase and be specific enough for the individual performing the business appraisal to know what is included in the sale (including any assumed debt).
- The business appraisal must include the individual’s opinion of value, the qualifications of the individual performing the appraisal and their signature certifying to the information contained in the appraisal.
- The lender may not use a business appraisal prepared for the applicant or the seller. The cost of the appraisal may be passed on to the Small Business Applicant.