Business appraisal

Definition

A third-party valuation the lender orders, which caps what the loan will finance.

Why It Matters

It arrives after the LOI and it can end a deal outright, because the SBA will not lend against a price above the appraised value. A number under your agreed price forces the seller down, forces you to bring more cash, or kills the deal, so it is worth testing the price against comparable sales before you sign anything. Ordering it is the lender's call and the fee is yours either way. The lender may not use a valuation prepared for you or for the seller, and the appraiser must hold one of five named credentials: ASA, CBA, ABV, CVA or BCA.

In numbers: A lender may value a business itself only when the purchase price, real estate aside, is $350,000 or less and buyer and seller are not closely related. A $4M price therefore goes to an accredited appraiser, whose fee the lender may pass on to you.