SBA SOP 50 10 8

Updated Valuation Guidance for 7(a) and 504 Loans (Effective June 1, 2025)

SOP 50 10 8 provides specific thresholds and scenarios dictating what type of valuation is required and by whom for 7(a) and 504 loans. Valuation professionals including CVAs, CPAs, and other appraisers should understand these guidelines to ensure their appraisals meet SBA standards. All requirements cited here are drawn directly from this SOP.

Effective June 1, 2025, the U.S. Small Business Administration’s (SBA) SOP 50 10 8 (Lender and Development Company Loan Programs), brought important updates and clarifications to business valuation requirements for 7(a) and 504 loan programs. Valuation professionals including CVAs, CPAs, and other appraisers should understand these guidelines to ensure their appraisals meet SBA standards. The SOP reinforces when a business valuation is required, who is qualified to perform it, acceptable methodologies and standards, and key instructions regarding going concern appraisals, real estate vs. intangible asset allocations, and lender responsibilities. All requirements cited here are drawn directly from SOP 50 10 8.

When is a Business Valuation Required

Business valuations are generally required for any change-of-ownership transaction financed by an SBA loan. The SOP emphasizes that determining the value of a business is “the key component to the analysis of any loan application for a change of ownership.”[1] An accurate, well-supported valuation is mandatory because such loans often create new debt unrelated to operations and significant intangible assets (goodwill).[1] In fact, SBA rules state that an SBA-backed loan may be used to finance a business acquisition involving goodwill or other intangible assets only if supported by an independent business valuation.[2] This ensures the buyer and SBA are not overpaying for the business’s intangible value and that the loan amount is justified by the business’s appraised worth.

Notably, SBA 7(a) loan proceeds for a business acquisition cannot exceed the business’s appraised value. The SOP explicitly caps the 7(a) loan amount used for any change of ownership at the business valuation amount.[3] If the agreed purchase price is higher than the independent valuation, the difference must be covered by subordinate financing or additional equity injection, not by the SBA-guaranteed loan.[3] This provision protects the SBA and lenders from financing transactions at inflated prices.

The SOP 50 10 8 provides specific thresholds and scenarios dictating what type of valuation is required and by whom for 7(a) and 504 loans:

• Non-special purpose businesses—For standard businesses (not involving special purpose real estate), the requirement depends on the size of the intangible asset financing:
• If the portion of the project being financed (including all loans: SBA 7(a), 504, seller financing, etc.) minus the appraised value of real estate and equipment is $250,000 or less, the lender may perform its own valuation analysis in-house.[4] (In other words, smaller deals with minimal goodwill can be valued internally, unless the lender’s own policies require an outside appraisal.)
• If the goodwill/intangible portion exceeds $250,000, or if the buyer and seller have a close relationship (e.g., family members or existing co-owners), the lender must obtain an independent business valuation from a qualified source.[5] Larger transactions and related-party sales demand an outside, independent appraisal to ensure objectivity.
• Special purpose property businesses—If the business operates from a special purpose property (a facility with unique design or limited-market use, such as certain hotels, gas stations, etc. defined as property built for a specific use),[6] stricter rules apply:
• If the intangible/goodwill portion is $250,000 or less, the lender may perform its own valuation (again assuming no internal policy dictates otherwise).[7]
• If the intangible portion exceeds $250,000, or if buyer and seller are related, the lender must obtain an independent going concern appraisal by a certified general real property appraiser.[8] In special purpose cases, the SBA specifically requires a state-certified general appraiser to value the business as a going concern, due to the complexity of separating business value from specialized real estate value. This appraiser must be independent of the lender’s loan production and approval process (no conflicts of interest).[9]
• The resulting going concern appraisal must allocate separate values to the key components: land, building, equipment, and intangible assets (goodwill).[10] In other words, the appraisal should clearly break out how much of the enterprise value is real estate versus business intangibles.
• The chosen appraiser must have proven experience in appraising similar special use businesses; the SOP requires that they have completed at least four going concern appraisals of equivalent special purpose properties within the past 36 months.[11] Furthermore, each such appraisal engagement must instruct the appraiser to follow current Uniform Standards of Professional Appraisal Practice (USPAP) guidelines,[12] ensuring a thorough and professionally compliant valuation report.

In addition, the SOP carries forward an important rule to prevent inflated valuations in quick resales. If a business has been transferred within the past 36 months prior to the loan application, SBA requires extra diligence—the lender must obtain a new appraisal of any business real estate involved and either have that appraisal reviewed by a separate appraiser or conduct a site visit by a senior lender staff member to validate the values.[13] This adds a check against flip transactions where a business might be sold at an artificially higher price shortly after a previous sale.

Who May Perform the Valuation: Qualifications and Independence

When an independent business valuation is required, the appraiser must meet SBA’s definition of a “qualified source.” According to SOP 50 10 8, a qualified source is an individual who regularly receives compensation for business valuations and holds an accreditation from a recognized valuation organization, while remaining independent of the loan process.[14] Specifically, the SOP recognizes the following credentials as qualified to perform SBA business valuations:[14][15]

• Accredited Senior Appraiser (ASA) – ASA[14]
• Certified Business Appraiser (CBA) – IBA[14]
• Accredited in Business Valuation (ABV) – AICPA[15]
• Certified Valuation Analyst (CVA) – NACVA[15]
• Business Certified Appraiser (BCA) – ISBA[15]

Regardless of designation, the appraiser must be independent of the lender’s loan production and approval functions, and have no appearance of a conflict of interest.[14] This means the person performing the valuation cannot be the loan officer or anyone who would benefit from the loan’s approval. Many bank lenders choose to engage third-party valuation firms or credentialed appraisers for this reason. (If the lender does use in-house staff to perform a smaller valuation, that staff should function independently of the credit decision process.)

Importantly, the SOP prohibits using a business valuation that was prepared for the borrower or seller of the business.[16] The lender must directly engage the appraiser and the valuation must be conducted for the lender’s purposes.[17] This ensures the appraiser’s client is the lender (and SBA), not the buyer or seller, reinforcing objectivity. The valuation report is required to include the appraiser’s conclusion of value, a signed certification, and a statement of the appraiser’s qualifications.[17] In short, SBA wants a full appraisal report with a defensible opinion of value, not just a calculation or a cursory broker’s estimate. (Notably, SOP 50 10 8 allows the cost of an independent valuation to be passed on to the borrower as an eligible business expense.)[18]

For special purpose property cases, the “qualified source” must specifically be a certified general real property appraiser (state-certified) with the requisite experience, as noted. This requirement reflects that when significant real estate is integral to the business’s value (e.g., a hotel, assisted living facility, etc.), an appraiser with real estate expertise is needed to properly value the going concern. That appraiser essentially produces a going concern appraisal allocating real property and intangible value, rather than a typical stand-alone business valuation. Other valuation professionals (ASA, CVA, etc.) are certainly still involved in many SBA appraisals for non-real estate-heavy businesses. The key is that whoever performs the work has the appropriate accreditation and independence demanded by SBA.

Valuation Standards and Methodologies Under SOP 50 10 8

While SOP 50 10 8 does not prescribe specific valuation approaches, it clearly mandates professional standards and thorough documentation for any valuation supporting an SBA loan. The required use of credentialed appraisers inherently ensures the use of generally accepted valuation methodologies (income, market, asset approaches as appropriate) and adherence to professional standards (such as AICPA’s SSVS or NACVA/ASA standards). In fact, the SOP explicitly requires compliance with USPAP in certain cases; each business appraisal for a special purpose property must be conducted in compliance with current USPAP guidelines.[12]

The scope of work must be well-defined. The lender’s engagement of the appraiser should clarify the nature of the transaction (asset sale vs. stock sale) and exactly what assets are being valued (e.g., is real estate included or separately appraised? Is any debt being assumed?).[17] The SOP specifies that the appraiser’s report should state the assignment’s scope and include a certification of the value conclusion and the appraiser’s qualifications.[17] This means a complete appraisal report with narrative, analysis, and conclusion of value is expected; not just a one-page valuation summary. The focus is on an “independent conclusion of value” supported by analysis.[17] Calculations of value (where an appraiser might only apply limited procedures) are generally not sufficient for SBA’s purposes; a comprehensive valuation is required to justify lending on a business acquisition.

For going concern appraisals involving real estate, as noted, the methodology must segregate the value of tangible assets vs. intangible goodwill. SOP 50 10 8 reinforces this by requiring distinct valuation of land, building, equipment, and intangible assets in the report.[10] For example, if an appraiser is valuing a motel business that includes real estate, the appraisal might say: land value $X, building value $Y, furniture/equipment $Z, and business intangible value $W, with the total being the going concern value. This level of detail is important for SBA and lenders to understand what portion of the value is attributable to real property (which can serve as collateral) versus goodwill (which is uncollateralized and thus riskier). It also aligns with SBA’s loan structuring rules (e.g., 504 loans can only finance fixed assets, not goodwill).

Acceptable valuation methods will depend on the business, but the appraiser will typically employ standard approaches (income capitalization/discounted cash flow, market multiples, asset-based methods) as appropriate to reach their conclusion. The SOP’s concern is less about dictating the formula and more about ensuring the result is credible and unbiased. By requiring qualified, independent appraisers and comprehensive reports, the SBA indirectly ensures that commonly accepted appraisal practices are followed. Additionally, by capping the loan to the appraised value, the SOP incentivizes conservative, well-supported valuations, the deal simply cannot proceed at an overstated value.

Lender Responsibilities and Requirements

SBA lenders also have explicit duties under SOP 50 10 8 to ensure valuations are used properly in the credit process:

• Ordering and relying on the appraisal—The lender must order the business valuation for its own use (not accept one from the applicant or seller) and include the final appraised value in its credit memorandum and loan documentation. If the loan is processed under SBA’s delegated authority (PLP), the lender may initially use an estimated value for underwriting, but must obtain and review the formal business valuation before closing.[19] The credit file must then be updated to compare the final appraised value to the loan amount and ensure compliance with the rule that loan proceeds do not exceed the valuation.[20]
• Verifying financial data—The lender is required to verify the financial information used by the appraiser against the seller’s tax records. SOP 50 10 8 states that the lender “must obtain a copy of the financial information relied upon by the individual who performed the business valuation and verify that information against the seller’s IRS transcripts.”[21] This critical step helps catch any discrepancies or false statements in the financials that the valuation was based on. For instance, if the valuation used tax returns or financial statements provided by the seller, the lender should pull IRS income transcripts to confirm those numbers. Any major inconsistencies could invalidate the appraisal or signal potential fraud.
• Ensuring collateral requirements—In change-of-ownership deals, lenders must be mindful of how much collateral (if any) the acquired business assets provide. The SOP’s requirement to allocate values between tangible and intangible assets helps lenders determine if additional collateral or down payment is needed. If the appraised business value is heavily weighted toward goodwill, the lender may need to secure other collateral or obtain personal guaranties to satisfy SBA’s collateral policies (though SBA loans can be approved with goodwill as the primary collateral, lenders should document their credit justification).
• Additional appraisal reviews for quick sales—As mentioned earlier, if the business was recently sold (within three years), the lender must take extra steps; obtaining a new real estate appraisal and a secondary review or site visit.[13] The lender should document these steps in the file. This is to ensure the lender is not blindly relying on a possibly inflated prior sale price as the basis for the new loan’s valuation.
• Documenting intangible asset financing—In certain SBA programs, if loan proceeds will finance intangible assets, the lender must specifically itemize the amount allocated to intangibles (goodwill) in the application (E-Tran system).[22] The SOP notes that the value of intangible assets can be determined by the business valuation’s conclusion, a separate appraisal of the intangible, or the book value on the balance sheet.[22] This transparency ensures all parties (lender, SBA, borrower) know how much of the loan is tied to goodwill versus tangible assets.

Overall, the lender’s responsibility is to incorporate the independent valuation into a sound credit decision. The independent appraiser provides an objective valuation, but the lender must still evaluate that information in context. For example, if the sale price is significantly above the appraised value, the lender must either reduce the loan amount or find mitigating factors (such as additional equity or subordinated seller financing) to bridge the gap.[3] The SOP encourages lenders to thoroughly justify their decisions whenever the valuation comes in low relative to the purchase price.

Conclusion

SBA’s updated SOP 50 10 8 sends a clear message: rigorous, independent business valuations are a cornerstone of prudent lending for business acquisitions. Whether under the 7(a) program or in combination with a 504 loan, any SBA-financed change of ownership involving significant goodwill must be supported by a qualified appraisal. Key points of the 2025 update include reaffirmation of the $250,000 threshold for requiring outside valuations, stricter requirements for special purpose property appraisals (including USPAP compliance and experienced real estate appraisers), and lender mandates to verify data and cap loan amounts to appraised values.

For valuation practitioners, the SOP provides both an opportunity and a responsibility. CVAs, ABVs, ASAs, and other accredited experts will continue to play a vital role in SBA lending, providing the independent analyses that underpin these transactions. Practitioners should ensure their reports contain all required elements, defined scope, certified conclusion of value, credentials, and proper allocation of tangible/intangible values, to meet SBA’s expectations.[23][24] By adhering strictly to the SOP guidelines, appraisers help small business buyers, lenders, and the SBA make informed decisions grounded in credible valuations.

Ultimately, SOP 50 10 8’s valuation guidance protects the integrity of the 7(a) and 504 loan programs. It ensures that loans are made on sound businesses at reasonable prices, supported by objective evidence of value.[23][2] As practitioners, staying current with these requirements is essential; it not only keeps us compliant but also enhances the quality and trust in the valuations we provide for the nation’s vital small business lending initiatives.

Sources: SBA SOP 50 10 8 (Effective June 1, 2025), Chapter 3, Paragraph C.3: Real Estate Appraisal and Business Valuation Requirements[23][4][8][24][12]; Appendix 3: Definitions[14][15]; Chapter 2: Uses of Proceeds (Intangible Assets)[2]; Chapter 1: Eligibility (Change of Ownership)[3]. All quotations and requirements are taken directly from SOP 50 10 8.

[1][2][3][4][5][6][7][8][9][10][11][12][13][14][15][16][17][18][19][20][21][22][23][24] SOP 50 10 8 Technical Updates effective June 1,2025.docx

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Daniel R. Basch, CPA, ABV, CVA, MBA, is Vice President of Valuation Services at Aperture LLC, where he provides valuation and litigation support services for shareholder disputes, marital dissolution, estate and gift taxation, mergers and acquisitions, and financial reporting. He is an active member of NACVA and currently serves on AICPA’s ABV Credential Committee.

Mr. Basch may be contacted at (585) 402-9499 or by e-mail to Dan.Basch@aperturellc.com.