Effective October 1, 2026, SBA lenders will require both a business valuation and quality of earnings report (QoE) for initial business investments and for businesses valued at $3 million or more.
When it comes to valuations, the least expensive valuation option may satisfy a basic requirement, but a detailed, objective valuation can give an SBA lender stronger support for assessing and managing risk.
Lenders are going to request an objective business valuation to assess risk as part of the financing decision for:
- Business acquisitions
- Management buyouts
- Partner buyouts
- Succession planning loans
Two Primary Choices for SBA Lenders:
While the SBA requires a business valuation to be prepared by a qualified business appraisal professional, the reality is there are varying degrees of valuation work completed.
1. The check-the-box option
This is typically a limited-scope estimate designed to satisfy a lender’s basic valuation requirement at the lowest practical cost. An SBA lender may opt for this valuation as they have already decided to underwrite the loan.
- Pros: Lower cost.
- Cons: Unlikely to withstand the same level of lender, investor, or legal scrutiny as a more comprehensive business valuation.
2. A detailed, objective business valuation
A comprehensive business valuation provides a well-supported assessment of a company’s fair market value and clearly explains how and why the conclusion was reached. Merrimack Business Appraisers evaluates normalized financial performance, cash flow, assets, liabilities, market conditions, industry trends, company-specific risks, and comparable transactions using our long-adopted and proven discounted cash flow method. The resulting report documents key assumptions and calculations, giving lenders, buyers, sellers, investors, and advisers a credible analysis designed to withstand rigorous financial, legal, and regulatory scrutiny.
- Pros: Detailed report presenting how and why the valuation was determined. Beneficial to the SBA lender as input for deciding whether to finance the deal or not and if yes, whether SBA Guarantor is part of terms.
- Cons: More expensive
Many lenders rely on detailed business valuations to support financing decisions. A thorough, objective valuation gives the lender more information for evaluating risk and determining whether the loan can proceed without an SBA guarantee. Because an SBA guarantee may add constraints and costs to the loan, the quality of the valuation can affect the borrower’s financing terms.
Investing in a detailed business valuation rather than a check-the-box valuation may result in more favorable financing terms. If a check-the-box valuation does not adequately address risks such as insufficient collateral, excessive goodwill, or a purchase price above market value, the lender may seek an SBA guarantee to offset the perceived risk. That guarantee may increase financing costs and the total cost of the transaction.
Conclusion
A low-cost, check-the-box valuation may be sufficient for an SBA lender who has already decided to underwrite the transaction.
A detailed business valuation can provide important support for the lender’s final financing decision and help them determine if they want to use the SBA Guarantor to reduce their risk. SBA lenders that engage the business appraisers who apply the highest standards for determining value offer a thorough valuation including presenting what the value is and why.
When Values Matter.
