Four Questions about Business Valuation & SBA Funding
By Kim Eells, Vice President, The Brand Bank & Susan Kite, Vice President, Signature Bank of Georgia
1. When is a Business Valuation Required?
- If the purchase price of the business less the appraised value of real estate/equipment is over $250,000 or your deal is not an arms-length transaction or if the bank requires for comfort; cost is generally $2,500 – $3,000 and takes about 2 weeks.
2. What happens when the appraised value differs from Sales Price?
- An SBA loan cannot finance an amount higher than the business valuation plus appraised value of real estate/equipment. The Sales price could be negotiated and lowered. Or if Buyer wants to pay the higher amount, it is a lender call but any amount above the valuation must be justified by Buyer. It cannot be part of the loan or counted as buyer equity.
3. Will your Seller need to sign a Standby Agreement?
- There are varying degrees of standby: Full (no payments), Partial (interest allowed) and Springing (payments are allowed unless bank instructs Seller to cease taking them – usually when there is a default). The Seller note must be on Full Standby if it is being counted toward Buyer equity. In this case, the payments can usually begin after 2 years- unless the Full Standby is being counted as part of a 25% equity requirement when the value of goodwill and intangibles is over $500,000.
4. How are financing Partner Buy-outs different?
- These transactions are still considered a change of ownership, but are viewed as less risky than a full change of ownership. Professional Business Valuations are required, regardless of sale price or loan size.
CALL US IF YOU NEED A KNOWLEDGEABLE AND EXPERIENCED SBA LENDER THAT WILL WORK HARD TO GET YOUR DEAL CLOSED!
Susan Kite, Vice President, Signature Bank of Georgia, Business Acquisition Loan Specialist, , 770-595-9734
Kim Eells, Vice President, The Brand Bank , Business Acquisition Loan Specialist, 770-853-5625