This article is valuation commentary. It is not legal, tax, accounting, or investment advice. Specific engagements depend on facts and applicable professional standards.
The lender orders the valuation, not the buyer or seller
The first practical point is that in a 7(a) deal you work through the lender, not directly through SBA. The current SOP 50 10 Version 8 (effective June 1, 2025) is explicit that the business valuation must be requested by and prepared for the lender, not the applicant or seller. The lender may not use a business valuation prepared for the applicant or the seller, although the cost may be passed on to the applicant.
That distinction matters. Brokers, sellers, and buyers sometimes commission “valuations” in advance to support a price target. Those reports may be useful for negotiation, but they generally do not satisfy the SBA lender’s file requirement. The SBA-required valuation is a separate engagement, ordered by the lender, with the lender as the named user. That’s what closes the loan.
The $250,000 threshold and the close-party rule
The lender worksheet in SBA Form 1920 still uses the same practical framework: total financing less appraised commercial real estate less appraised equipment equals the remaining value being financed. That remainder controls what the SBA requires.
- Remaining financed value (after real estate and equipment) is $250,000 or less
- No close relationship between buyer and seller
- The lender prepares an internal valuation supporting the price
- The transaction structure is straightforward
- Remaining financed value exceeds $250,000
- Or buyer and seller have a close relationship (family, business affiliation, defined connection)
- Or the transaction involves stepped-up equipment values
- Or the business operates from special-purpose real estate
The form also requires the lender to certify that the portion of proceeds allocated to the ownership change does not exceed the value stated in the required business valuation. That’s why a credible report has to actually support the structure of the transaction, not just produce a high enough number.
Who qualifies as an independent qualified source
What the valuation must cover
The core SBA concept is that the business valuation addresses the business being acquired, while commercial real estate is separately addressed through appraisal or evaluation requirements. The current SOP states that determining the value of a business “not including real estate which is separately valued through a real estate appraisal” is a key part of the analysis for a change-of-ownership loan. SBA explains why: a change in ownership creates new debt unrelated to operations and can create intangible assets. Beyond confirming a price, the valuation documents the credit file, showing what specifically is being financed.
The report scope can’t be generic. An asset deal and a stock deal have different included assets, liabilities, tax consequences, and assumed obligations. SBA’s current text specifically says the scope should identify whether the transaction is an asset or stock purchase and should be specific enough to show what is included in the sale, including assumed debt. In practice, that means the valuation should line up with the purchase agreement, the financing uses, and any separate asset allocations the lender is relying on.
Real estate, equipment, and special-purpose property
This is where many otherwise straightforward acquisitions become specialist assignments, because the architecture is not one blended number: real estate triggers separate appraisal or evaluation rules, equipment values may need separate support, and special-purpose property invokes specific credentialing requirements.
Commercial real estate
For Standard 7(a) loans (above $350,000), lenders must obtain an appraisal by a state-licensed or state-certified appraiser when commercial real property secures the loan. For 7(a) Small and SBA Express loans secured by commercial real estate, an appraisal is required when the transaction involves parties with a close relationship or when SBA or the lender concludes an appraisal is needed; otherwise the lender must obtain an appropriate evaluation consistent with safe and sound banking practices. For existing buildings financed with SBA proceeds, the borrower generally must occupy at least 51% of the rentable property; for new construction, at least 60% initially.
EPC/OC structures
If the transaction uses an Eligible Passive Company / Operating Company structure, lease economics matter. Under 13 CFR 120.111, the EPC can hold the real estate and lease it to the operating company, but the lease must be in writing and subordinate to SBA’s lien. Rent cannot exceed the amount needed for debt service plus direct holding costs. The lease term must at least match the loan term. The operating company must be a guarantor or co-borrower depending on structure and use of proceeds. For property-rich acquisitions, this is why real estate and operating-company analysis cannot be treated as separate silos.
Stepped-up equipment values
The current SOP says that if fixed assets are valued above net book value, the lender must obtain an independent appraisal by a qualified individual to support the higher number. A fixed-asset value embedded inside a business valuation will not satisfy that requirement, except as part of a going-concern appraisal. In plain English, if the transaction depends on a stepped-up equipment number, the business valuation alone will not solve that problem.
Special-purpose property
The ESOP exception
There is one narrow caveat: the SBA carries forward a specific exception for certain ESOP-related 7(a) loans. In that limited context, an independent business valuation is not required if the lender uses the ESOP valuation prepared in accordance with ERISA specifications. That’s an exception to the general rule, not the rule itself. For ordinary buyer-seller acquisition loans, the standard requirements apply.
When the valuation has to be in the file
For Standard 7(a) loans submitted through the Loan Guaranty Processing Center, the valuation must be submitted with the loan application. Under delegated authority, the valuation may be obtained and reviewed after an SBA loan number is issued but before closing. That’s why a buyer can hear “we’re approved” and still not be done with valuation work. The lender’s delivery method affects when the valuation is needed in the file.
What buyers and sellers should prepare
To keep the valuation engagement on the lender’s timeline, the deal team typically needs:
- Letter of intent or executed purchase agreement, with structure clearly identified (asset vs stock)
- Three to five years of financial statements for the target business
- Three to five years of business tax returns
- Year-to-date financials through the most recent month available
- Customer concentration data: top 10 customers, revenue, contract terms
- Detailed equipment list with original cost, age, and book value
- Real estate inventory: owned, leased, related-party arrangements, recent appraisals
- Buy-sell, shareholder, or operating agreement
- Material contracts: key customers, leases, financing
- Environmental reports, if any (relevant for special-purpose properties)
- Lender contact and engagement instructions
What delays closings
- Seller-side valuations the lender can’t use. The valuation has to be lender-engaged, not seller-engaged. Sellers who try to short-circuit this by handing over their broker opinion add delay.
- Misalignment between purchase agreement and valuation scope. If the valuation is built for an asset purchase but the deal is structured as a stock purchase (or vice versa), the lender will require a revised report.
- Stepped-up equipment values without separate appraisal. A business valuation that includes equipment above book value won’t close the gap. The lender needs a separate equipment appraisal.
- Special-purpose property without Certified General appraiser credentials. A business appraiser without real-property credentials can’t produce the required dual-element analysis. The deal stalls until a Certified General appraiser is engaged.
- Close-party relationships not disclosed up front. If buyer and seller have a family or business affiliation that triggers the independent-valuation requirement, undisclosed relationships create rework.
- Real estate occupancy below thresholds. 51% owner-occupancy for existing buildings, 60% for new construction. Below those thresholds, the deal may not qualify for SBA financing.
Why dual-discipline credentialing matters here
Most 7(a) acquisitions involving real estate or special-purpose property require both a business valuation and a real-property appraisal that reconcile to one transaction story. Few practitioners hold credentials across both disciplines, which is why complex SBA-financed deals often get split between two firms, with predictable results when the conclusions don’t reconcile.
LHM is built specifically for this category. The founder holds California Certified General Real Estate Appraiser credentials and is an ASA Business Valuation candidate. For SBA-financed transactions involving operating real estate, special-purpose property, or stepped-up equipment, the dual-discipline footing matters most where the lender needs a single coherent analysis rather than two separate reports that may or may not reconcile.