You Found the Perfect Business. But Will the SBA Agree?

You’ve done the hard work. You found a business you love, negotiated a fair price, and lined up your SBA loan to make it happen. But there’s one more hurdle you might not have thought about—the business valuation.

Here’s something many first-time buyers don’t realize:

It doesn’t matter what price you and the seller agree on. If the SBA’s required valuation says the business is worth less, your financing could hit a roadblock.

Before you get too far down the path, let’s talk about how SBA business valuations work, why they matter, and what you can do if the numbers don’t line up.

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Why SBA Business Valuations Matter

SBA lenders don’t just take your word (or the seller’s word) for what a business is worth. To protect both the lender and the buyer, the SBA requires a third-party valuation to ensure that the business is priced fairly.

Here’s how it works:

The lender orders the valuation—it must come from an independent, SBA-approved valuation firm. Neither you nor the seller can provide your own.

The valuation firm looks at:

• the business’s cash flow
• industry trends
• comparable sales

in order to determine a fair market value.

The lender then uses this valuation to set the maximum loan amount they can approve.

If the valuation matches or exceeds your purchase price, great! But if it comes in lower, the SBA won’t allow the lender to finance more than that amount. That’s when you’ll need a plan.

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When Is an SBA Business Valuation Required?

Not all SBA loans require a third-party valuation, but many do. Here’s when it’s mandatory:

• Loan Amount Over $250,000: If the loan amount (excluding real estate and equipment financing) exceeds $250,000, the lender must get an independent valuation.
• Special-Purpose Property Included: If the business operates from a gas station, hotel, car wash, or other specialized property, a third-party valuation is always required, regardless of loan size.

When the loan amount is $250,000 or less, lenders may use their own internal valuation process instead of hiring a third party.

If you’re financing a business purchase of $500,000 or more, expect a formal business valuation to be required.

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What’s Included in an SBA Business Valuation?

A third-party valuation firm will consider a range of factors to determine the business’s fair market value:

Financial Performance: Revenues, profits, and cash flow.

• Industry Comparisons: How similar businesses have been valued and sold.
• Intangible Assets: Goodwill, customer lists, brand value, and more.
• Asset or Stock Purchase Structure: Whether you’re buying the business’s assets or shares.

A certified appraiser signs off on the valuation, ensuring it meets SBA guidelines and reflects an accurate assessment of the business’s worth.

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What If the Valuation Comes in Too Low?

This is the moment where many first-time buyers hit a snag. If the valuation comes in lower than your agreed-upon purchase price, SBA lenders cannot finance more than the appraised value.

But don’t worry, you still have options!

Renegotiate the Purchase Price

• Sometimes, the simplest solution is to go back to the seller and lower the price to match the valuation.
  • Many sellers understand that SBA lending rules set financing limits and may be open to an adjustment.

Increase Seller Financing

• If seller financing wasn’t part of your original deal, or if the amount was small, you might be able to increase it to cover the gap.
  • Example: If the business is priced at $1 million but the valuation comes in at $900,000, the seller could finance the $100,000 difference.

Bring More Equity to the Table

• If the seller won’t lower the price, you may need to put more of your own money into the deal.
  • This could come from personal savings, a gift from family, or an investor contribution to ensure the deal stays within SBA guidelines.

The key here is flexibility—if you prepare for these scenarios early, you’ll be in a better position to close the deal without unnecessary delays.

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Avoid These Common Pitfalls

Assuming the purchase price = business value

• Just because you and the seller agree on a number doesn’t mean an independent valuation firm will see it the same way. SBA lenders rely on objective market data, not just your negotiation.

Waiting until the last minute to think about valuations

• If the valuation comes in low right before closing, you could be scrambling to restructure the deal. Talk to your lender early about valuation expectations to avoid surprises.

Not structuring seller financing properly

• If you plan to use seller financing to bridge a valuation gap, make sure your lender understands and approves the terms. Lenders have different policies on how seller notes factor into the financing.

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How to Set Yourself Up for Success

Do your own rough valuation upfront – Compare the business’s price to similar sales and estimate its cash flow multiple.

Talk to your lender early – Ask how they handle valuations and what the process looks like.

Have a Plan B – Be prepared to renegotiate, add seller financing, or increase your equity if needed.

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Pioneer Capital Advisory: Helping Buyers Navigate SBA Financing

Since May 2022, Pioneer Capital Advisory has helped 78 buyers successfully purchase businesses with SBA financing. We specialize in guiding buyers through the SBA 7(a) financing process, ensuring that deals stay on track and buyers are well-prepared for every stage of the transaction.

We get involved at the point where buyers have a deal at or near the LOI stage, helping them structure their financing, navigate lender requirements, and work through challenges like business valuations.

If you’re planning to buy a business and need expert guidance on SBA financing, I’d love to help.

Email me at matthias@pioneercap.com to discuss your deal.

Or, if you’d like to set up a time to chat, book a call with me here:

​Schedule a call​

If you know the rules,

Stay flexible with deal structure, and

Work with professionals who understand SBA lending,

Take care,

Matthias

🌐 Visit us at pioneercapitaladvisory.com​

Disclaimer: The information in this newsletter is for informational purposes only and should not be considered legal or financial advice. Business buyers are encouraged to consult with their legal counsel and accountant to ensure the proper structuring of their transactions and to fully understand the tax implications of seller financing.

Thanks for reading! Feel free to reply directly to this email with any questions or thoughts.