SBA Business Valuation and Appraisal | Art of Business Valuation

More Competition or More Quality SBA Loans?

by Greg Caruso | Aug 21, 2025 | SBA Business Valuation and Appraisal

Fintech, or non-banks using advanced technology are entering the market for SBA 7(a) and other commercial loans. Often, the process is streamlined and at least begins more straight forward. But, will these loans and lenders provide quality credit over the long haul expanding the SBA market or will they run into default and compliance problems?

When New Kids on the Block Challenge SBA Lending: The Fintech Factor

Historically, SBA loans, with their government guarantees, have been the purview of established banks and credit unions. These institutions possess deep experience in commercial lending, understand the nuances of underwriting, and navigate the complex regulatory environment with practiced ease. They’re well-versed in assessing cash flow, evaluating collateral, and building the long-term relationships that often characterize small business banking.

Enter the fintech companies. Driven by technology and a desire to serve previously underserved markets, many fintechs have leapt into the SBA space.

The participation of fintech companies in SBA lending is a double-edged sword. It drives innovation, expands access to capital, and offers much-needed speed in a fast-paced business world. However, it also necessitates a critical evaluation of the associated risks, particularly concerning lender experience, robust underwriting, and rigorous compliance.

For traditional 7(a) SBA lenders, the challenge lies in adapting to this new competitive landscape. This means potentially embracing more technology themselves to streamline processes, while also emphasizing their core strengths: deep commercial lending expertise, strong risk management frameworks, and the value of long-term client relationships. For the SBA and regulators, it means strengthening oversight and providing clearer guidance to ensure that all participating lenders, regardless of their background, are equipped to uphold the integrity and minimize the risks within these vital small business programs. The goal, ultimately, is to ensure that small businesses continue to have access to the capital they need, from lenders that are both innovative and responsible.

Plan, Lead, Flex, Repeat

by Greg Caruso | Mar 18, 2025 | ESOP Business Valuation, Estate and Gift Tax Business Valuation, SBA Business Valuation and Appraisal

Running a business during uncertain times can be challenging, but it’s not impossible. Changes in the economy, politics, unexpected events, and new technologies can make planning and successful operations hard. However, businesses that stay flexible and adapt quickly have a better chance of surviving and growing. To do this, business owners must be ready to change their plans and respond to new situations rapidly.

One key strategy is to review and adjust business plans regularly. This includes thinking out contingency plans for unexpected but possible change. Markets and customer needs can shift quickly, so businesses must keep an eye on trends and be ready to pivot (and you thought pivot ended with Covid) when needed. Being open to change allows companies to take advantage of new opportunities while limiting potential risks. Staying informed and making small adjustments over time can help businesses remain stable and competitive.

Another important factor is building a strong foundation. This means planning, building your balance sheet to survive emergencies, and ensuring business operations can continue even when problems arise. Building a management team that works together provides resilience and internal forums for problem-solving. Companies should also have a variety of suppliers and customers to avoid concentrations that increase risk and can quickly put a firm out of business. Planning can help companies to stay strong, even when unexpected challenges occur.

Finally, good leadership is crucial during uncertain times. Business owners and managers should communicate openly with their teams and encourage problem-solving. Employees who feel supported and valued are more likely to stay motivated and help the company succeed. Leaders should also take care of themselves, as making good decisions under pressure requires a clear mind.

With the right mindset and approach, businesses can not only survive tough times but come out stronger.

The Business Owner’s Path to an Accurate Valuation in 5 Steps

by Greg Caruso | Feb 22, 2025 | ESOP Business Valuation, Estate and Gift Tax Business Valuation, SBA Business Valuation and Appraisal

You need a business valuation or a business appraisal. You might need the business valuation for Estate and Gift business taxes, applying for an SBA loan, ESOP stock value, or a host of other reasons. How can you make sure that you obtain the most accurate business valuation possible?

The business valuation is going to tell a story about your business. This story will contain a narrative backed up by statistics, facts, and figures. This story must make sense when it is complete. Your job as a business owner obtaining a valuation is to make sure the story, facts, and figures are clear and sensible to the experienced valuation professional appraising the business.

Below are 5 steps business owners should take to make sure your business valuation is as accurate as possible.

THE 5 STEPS

Be able to explain why your product or service is so desirable you can continue to make a high profit
The most important thing in valuing your business is understanding how you create and keep a market of customers that will pay enough for your product or service that you can be expected to continue making a profit. Do you have patents keeping others out? Do you have a unique distribution channel? Do you have better internal systems and people? This is the core of the business valuation. How your business makes money and how it will continue to do so. The ability to clearly and succinctly explain that is key to the valuer understanding your business and getting the valuation correct.
Have quality financial information.
You must have quality financial information. A business valuation is, to a large extent, a review of your past financial results and a projection of your future financial expectations. Without clear data it is very difficult to see the details necessary to make correct assumptions and calculations. In addition to historic financial information, business plans and useful projections consistently kept will add to the valuer’s understanding of the business.
Have leases and major contracts in good order
Leases, customer contracts, loan documents, and the like may not make a business, but if they are not in good order a business may suffer major losses quickly. These documents in good form reduce risk which increases value. Have the major legal documents your business relies on updated and accessible, so you can provide them when asked.
Have systems outlined and resumes of key people
Simply put, a business is a series of systems that produce a product or service, hopefully at a profit. Most businesses have many systems that are run by people. True high-quality systems are where “normal people obtain extraordinary results every time.” This requires great systems, great training, and very good people. Make sure you can document all of these.
Hire an experienced valuation professional.
Clearly, the valuer must have the background to understand how actual businesses on the ground work and how that translates into value. Business valuations are performed for specific purposes – sales, SBA loans, ESOP structuring, divorce, Estate and Gift Tax. While it might sound crazy, it is a fact that the purpose can often significantly change the correct business value found. Make sure the valuer understands and has performed valuations for your purpose. Finally, make sure they have sufficient background and training in the fundamentals of business valuation.

These five steps lead to a consistent well-run business and obtaining a correct business valuation. Business valuation does have an element of the old saying, “garbage in – garbage out.” As a business owner you do play an important role in obtaining a proper business valuation.

SBA 7(a) Loans For ESOPs?

by Greg Caruso | Sep 29, 2022 | SBA Business Valuation and Appraisal

In 2018 the Main Street Employee Ownership Act (MSEOA) was passed. It was thought the MSEOA would allow companies to get an SBA 7(a) loan for an ESOP transition. Unfortunately, the SBA requirements to secure the 7(a) loan for an ESOP transition made it unlikely that anyone to use it. They are still using a case-by-case approval process for ESOP loans. The NCEO outlines those requirements in a recent blog post.

This June, Congress introduced H.R. 8254. The Appropriations Committee report states:

Employee Ownership.–The Committee recognizes that employee-owned businesses are uniquely structured and provide wide-ranging benefits for businesses, workers, and the local economy. The Committee notes that the Main Street Employee Ownership Act, which Congress enacted in section 862 of Public Law 115-232, requires SBA to make structural changes in SBA lending programs to ease the challenges faced by employee-owned businesses in accessing financing. This legislation also requires SBA to use Small Business Development Centers (SBDCs) to establish an employee-owned business promotion program to provide assistance on structure, business succession, and planning. SBA is directed to fully implement these requirements. The Committee further directs SBA to work with the Departments of Agriculture, Labor, and Commerce to provide education and outreach to businesses, employees and financial institutions about employee-ownership, including cooperatives and employee stock ownership plans; provide technical assistance to assist employees’ efforts to become businesses; and assist in accessing capital sources.
https://www.congress.gov/congressional-report/117th-congress/house-report/393

If this bill gets passed, it may create a great opportunity for businesses to sell to their employees.

The 6 Steps To Get An SBA Startup Loan

by Greg Caruso | Apr 12, 2022 | SBA Business Valuation and Appraisal

The United States Small Business Administration—or SBA—loans are primarily for new businesses to get off the ground.

The amounts you can receive vary by loan program but some range up to $5 million! Funds also may be more accessible to some borrowers who struggle to qualify for other business financing methods.

However, most new business owners say that applying for an SBA loan can feel daunting because of the eligibility requirements and application procedures imposed by individual SBA lenders.

Follow these steps to get an SBA startup loan:

Step 1 –Calculate Your Startup Costs

Before you apply for an SBA startup loan, you need to evaluate the needs of your business. First, consider one-time startup costs and then recurring expenses (which may include everything from renting office space to buying equipment and covering payroll for your first employees).

Step 2 – Check Your Eligibility

The Eligibility requirements vary by SBA loan type and individual lender, there are a few general requirements that a business must meet to qualify for an SBA startup loan.

A Business Must:

Operate for profit in the U.S. or its territories
Constitute a small business by SBA Standards
Demonstrate a need for the loan funds
Have reasonable invested equity
Have already accessed alternative financial resources, such as personal assets
Use the loan proceeds for an acceptable business purpose
Not have any delinquencies on debt to the U.S. government

Step 3 – Write a Business Plan

Most startups do not have extensive financial records like established businesses, so business owners can improve their approval odds by drafting a comprehensive business plan that demonstrates how the business will make money and on what timeline.

Step 4 – Choose a Loan Type

There are several loan programs to meet a range of borrowing needs, however not all of them are good fits for startup companies.

The Options Include:

SBA Microloans
SBA Community Advantage Program
SBA 7(a) Loans
SBA 504 Loans

Step 5 – Research and Compare Lenders

Borrowers must apply for an SBA loan through an approved financial institution and meet the individual lender’s application and credit requirements. The SBA provides small business owners the Lender Match Platform, which helps business owners choose the best lender to fit their needs.

Step 6 – Prepare and Submit Your Application

Individual lenders impose different requirements, but there are some materials that are requested by most lenders. In addition to a business plan, prepare the following documents as part of your loan application:

Copies of business licenses and certificates
Business overview and history
Personal and business tax returns for the past two years
Current and projected financials for one to three years
Profit and loss statement and balance sheet
Loan application history

Read The Full Article By Forbes That Covers Each Step In-Depth HERE.

Questions, want to know more, contact Gregory R. Caruso, Harvest Business, LLC, t/a The Art of Business Valuation.

Franchises With the Most Outstanding SBA 7(a) Business Loans & Their Default Rates

by Greg Caruso | Mar 10, 2022 | SBA Business Valuation and Appraisal

See which franchises have the most SBA 7(a) loans outstanding and their default rates. In addition see which franchises have the highest Small Business Administration Loan default rates.

While a particular business may fail for many reasons one of the benefits of a franchise is name recognition and business systems. A high default rate may indicate that the business systems are not resilient and effective. Make sure you both know the value of the business you are buying (we are business valuators providing SBA business valuations after all) and know how successful other owners are.

Click to see this article now.

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