SBA Loan Valuations

SBA SOP 50 10 8.1 applies to any loan issued an SBA number on or after 1 October 2026 — not the application date. Deals submitted in late September but approved in October fall under the new rules. Four changes matter for anyone buying or selling a business with SBA financing.

Independent valuations on every change-of-ownership deal: 7(a) Small underwriting is eliminated for change-of-ownership transactions regardless of size. Even sub-$350,000 acquisitions now go through full Standard 7(a) underwriting with a formal independent valuation.
Debt capped at the supported valuation: Total transaction debt — including any seller note not on full standby — cannot exceed the appraised value of the business. Any premium above it has to come from buyer equity or a full-standby seller note. The valuation now sets the ceiling on what is financeable.
DSCR floor raised to 1.25x, on historical earnings: Up from 1.15x for initial acquisitions, owner buyouts and ESOPs. Lenders may not rely on post-closing projections — the last fiscal year, or a two-year average, is what counts.
Quality of Earnings required at $3M and above: Mandatory for initial acquisitions and business expansions at a purchase price of $3 million or more, excluding owner-occupied real estate. The lender must commission it; a borrower-ordered report does not satisfy the requirement.

The practical effect: an overpriced business no longer just sits on the market. It dies in underwriting — often after months in escrow, with the buyer's deposit and everyone's legal fees already spent. Price is now a financing question, not a negotiating position.

Where we fit

We price a business against what comparable Bay Area businesses have actually sold for, and against what the cash flow will carry at 1.25x on last year's real numbers — before it goes to market, not after a bank says no.

For sellers — an asking price that can clear underwriting, so the deal survives the bank instead of collapsing in month four
For buyers — an honest read on whether the cash flow covers the debt at the new coverage ratio and still pays a salary
For lenders — recast financials that reconcile to the filed returns, so the file is defensible before it goes to credit
For everyone — a realistic view of how much of the price is financeable once the debt cap is applied

The SBA-required independent valuation must be commissioned by the lender and prepared by an appraiser holding a recognised business valuation designation. Where that is what a file needs, we will say so and work alongside whoever the lender engages.

Where we fit

Pricing a deal under the new rules?