SBA Business Valuation and Appraisal Archives

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.

How to Obtain SBA Financing to Purchase a Business

by Greg Caruso | Feb 22, 2022 | SBA Business Valuation and Appraisal

A key to buying or selling a business is the ability of the buyer to obtain the money for the business acquisition. Many business purchases or business acquisitions will be financed by a Small Business Administration, SBA 7(a) loan. Here are the major steps to obtain SBA 7(a) financing for purchasing a business and several great resources if you wish to learn more.

Pull together your financial statement. Here is a link to an SBA Financial Statement Form to use
Gather 3 years of your personal and if you own a business, business tax returns.
If married, talk to your spouse. In most cases they will have to co-sign the loan. If they are not willing to do this bring this up early with the bank. It may prevent you from obtaining a loan.
You may want to get per-qualified from a bank. The banker will look at your information and help you understand the size business that is realistic for you to finance. In all cases the financials of the business will impact and may change this preliminary analysis.
Obtain any other information requested by the bank loan officer packaging the Small Business Administration loan. There are likely to be many necessary documents.

Next, armed with some idea of the loan you are qualified to get go out and find a business to buy. This is a process. Figure it is likely to take six to nine months and will be a lot of work. Once you identify a business you want negotiate a letter of intent (LOI) with the Seller. A LOI is a preliminary outline of the business terms that your business purchase will be based on. Armed with the LOI go back to your SBA loan officer and….

Provide the letter of intent to the SBA loan officer
Provide three years Tax Returns for the Selling Business
Prepare a forecast and business plan for the next three years for the business finances.
Complete a full SBA Loan Application
Obtain all other required documentation. Click here for an SBA 7(a) Loan Program list

Once you have made a full application with the SBA lender for the SBA small business loan there will be many other things for you to do.

The lender will obtain an SBA Business Appraisal or SBA Business Valuation. This business appraisal confirms that you are paying within the range of Fair Market Value for the business. It means the price you are paying is within the range of a fair deal. It does not mean you are getting a great deal.
Do your own due diligence. Hire an accountant to go through the books and records and tie cash to the banks and source documents and a check basis. Check out the condition of assets, talk to key people, talk to suppliers, etc. Make sure you are buying what you think you are buying.
If you have a letter of intent negotiate the full Binding Purchase Agreement. Make sure you hire an attorney that is familiar with business transactions in the state you are in.
When the day comes, go to closing……Congratulations on your new business and new SBA (7(a) business acquisition loan.

SBA 7(a) and other SBA programs provide a huge source of debt funding to increase your leverage or buying power. For most individuals buying a small business the 7(a) program is the only source of debt funding. The SBA makes loan guarantees to banks for qualifying buyers and businesses that reduces the bank risk to a level where the banks can lend. For details see – SBA, Buy an Existing Business or Franchise https://www.sba.gov/business-guide/plan-your-business/buy-existing-business-or-franchise and How to Finance an Acquisition Using an SBA Loan https://www.entrepreneur.com/article/358292

In some situations there are other forms of financing. For instance some businesses can be purchased with Asset Financing such as loans secured by Accounts Receivable or Real Estate financing. Other, extremely stable businesses like medical and dental practices may be purchased with conventional financing. For multiple possibilities see US Chamber of Commerce, How to finance a business acquisition: https://www.uschamber.com/co/run/business-financing/financing-buying-an-existing-business and CNBC, Secure financing with these 9 types of small business loans https://www.cnbc.com/select/small-business-loan-types/.

The Art of Business Valuation and Harvest Business, LLC have performed 100’s of business valuations for SBA 7(a) purposes and directly for buyers and sellers who want to know the value of the business they are buying or selling. If you have any questions please send us an email today.

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