What Makes a Valuation SBA-Compliant?

Miranda Kishel
May 2
2 min read

What Does “SBA-Compliant Valuation” Mean?

A SBA-compliant valuation is a formal business valuation that meets the documentation, methodology, and professional standards required by the U.S. Small Business Administration (SBA) when financing a business purchase with an SBA loan. It ensures that the business’s value is accurate, well-supported, and unbiased, allowing the SBA and the lender to make informed decisions about loan risk.

Why SBA Compliance Matters for Small Business Owners

If you're buying or selling a business and plan to use an SBA 7(a) loan to finance the deal, the SBA requires a compliant business valuation when:

The loan is over $500,000 and involves a change in ownership
There is a close relationship between buyer and seller (e.g., family members or business partners)

Failing to meet SBA requirements can delay financing, reduce the chance of loan approval, or cause your deal to fall apart altogether.

Common Use Cases and Examples

Here are a few scenarios where an SBA-compliant valuation is essential:

A buyer applies for a $750,000 SBA loan to acquire a retail business from their cousin
A business owner wants to sell their company and attract SBA-financed buyers
A business broker is structuring a transaction and needs documentation to support the deal’s asking price

In each of these cases, the valuation report must follow SBA standards for:

Independence (performed by a qualified, third-party appraiser)
Methodology (accepted valuation approaches: income, market, and asset-based)
Documentation (detailed financial analysis and narrative explanation)

Related Terms and Misconceptions

Not all valuations are SBA-compliant. Some common misconceptions:

“My accountant did a valuation.” → Most SBA lenders won’t accept this unless the accountant is a qualified valuation professional.
“I used a free valuation calculator online.” → These tools are not accepted by lenders or the SBA.
“The purchase price is what the business is worth.” → SBA requires substantiation of value, not just agreement between buyer and seller.

Related terms:

Fair market value
Qualified source (an accredited valuation professional)
Change of ownership transaction

Tips for Applying This Concept in Your Business

To stay compliant and confident during the financing process:

Hire a certified valuation expert (e.g., CVA, ASA, or CBA designation)
Ask if the valuation meets SBA standards before paying for the report
Use a valuation early in negotiations to guide pricing and loan discussions
Ensure your financials are clean and accurate to avoid delays

Final Thoughts

If you're involved in buying or selling a small business, an SBA-compliant valuation is a non-negotiable requirement when loans are involved. It protects all parties and increases the chances of a smooth transaction.

Learn more about our professional & SBA compliant Business Valuation Services at Development Theory.