When seeking business financing for a business acquisition, it’s crucial to comprehend the factors influencing the purchase price, obtaining an Equipment Appraisal for your SBA 7a loan may be a crucial factor. While a substantial portion is often attributed to a business’s goodwill (encompassing branding, market position, customer lists, and more), it is not the sole determinant.
Since goodwill cannot serve as collateral, the business and equipment appraisals conducted by your lender during the acquisition process play a pivotal role.
Delve deeper into the valuation of businesses for sale and grasp how equipment appraisals can have a significant impact on the price when utilizing an SBA 7(a) loan for the acquisition.
Navigating a Business Acquisition: Purchase Price and Appraised Value
In the realm of purchasing an existing business, two crucial figures demand your attention: the negotiated purchase price and the appraised value. The purchase price is a collaborative agreement between you and the seller, while the appraised value is meticulously determined by an impartial appraiser specializing in business valuations.
As per the SBA, the purchase price encompasses all acquired assets, spanning tangible elements such as real estate, machinery, inventory, equipment, and intangible assets like goodwill. It’s important to note, however, that commercial real estate integrated into a business acquisition follows distinct appraisal and collateral prerequisites.
At what point is it advisable to include an equipment appraisal in the business valuation process?
In specific situations, acquiring a distinct equipment appraisal can prove beneficial. This circumstance may arise when the prospective business heavily depends on its equipment for continuous operations, such as in the case of a machine shop. Depending on the transaction or the lender’s policies, your lender might mandate or suggest a separate equipment appraisal alongside the overall business valuation.
Ensuring the viability of the business is crucial in the valuation process. A distinct equipment appraisal becomes particularly valuable in addressing these considerations and bridging any information gaps that may exist before finalizing the business purchase.
A glimpse into the process of business valuation and equipment appraisal for your SBA 7a Loan.
Here’s a step-by-step breakdown of the process when real estate is not involved, and the business purchase price encompasses goodwill and tangible assets:
1. Your lender will assess your purchase agreement to determine the required level of valuation. This involves deciding whether a separate equipment appraisal is advisable or mandatory according to your lender’s criteria.
2. Following a general guideline for SBA 7(a) loans, if the loan surpasses $250,000 or there exists a close relationship between you and the seller, your lender must mandate a third-party business valuation. For amounts below $250,000 with no close relationship, the decision aligns with your lender’s policies for non-SBA loans of similar size.
3. Your lender will provide a list of qualified third-party sources and inform you about the appraisal costs. If upfront payment is required, this expense can be considered part of your owner-equity contribution.
4. In the event of a shortfall in either the business valuation or equipment appraisal, renegotiation with the seller becomes necessary. The SBA 7(a) loan program cannot finance an amount exceeding either the purchase price or the appraised value of the business.
The team at Truman Mox is here to support your business and the appraisal equipment appraisal process. Contact us to see how can help your business achieve its goals.February 4, 2024 8:26 pm