Government guaranteed lending, such as that offered via Small Business Administration (SBA) programs, provides a critical function in allowing small businesses in America to access the commercial credit markets through local lending institutions. Oftentimes, SBA loan guarantees are the determining factor whether a small business is able to borrow funds for working capital or equipment and/or real estate purchases or whether an individual can purchase an operating business (and consequently whether the seller of that business can effect the transaction). Many business owners and prospective borrowers are unfamiliar with SBA programs and how the value of their business plays into the lending process.
For 7(a) loan guarantees through the SBA, a purchaser of a business or the business owner borrowing funds may be able to borrow more than the value of the tangible assets of the business. Effectively, part of the loan will be against the goodwill or intangible value of the business. But how is the goodwill of the business determined? The SBA requires an independent business appraisal or business valuation of the company performed by a qualified business appraiser that, in essence, estimates the fair market value of the goodwill of the business against which the loan may be made. Thus, it’s critical to understand various facets of the valuation process and how that impacts the loan process.
Whether you’re looking for general information pertaining to SBA loans, we hope you find information on this site useful.