"The valuation came back at $1,000,000. Your contract says $1,200,000. We can't lend against the difference." Sabe (a made-up buyer) had a signed letter of intent on Lanternfig Laundry Co. (a made-up laundromat), $120,000 saved, and a plan that worked on paper. One report from an appraiser she never hired killed it.
This is general information, not legal or financial advice. Confirm every rule against the current SOP and your lender before you sign anything.
The one tip
When you buy a business with an SBA 7(a) loan, the seller sets the asking price, but the lender's business valuation sets the most you can borrow. Pressure-test the price against a real valuation before you sign the purchase agreement, not after.
Under SOP 50 10 8.1 (effective October 1, 2026), Appendix 15:
- The business valuation must support the Business Purchase Price. If you pay more than the valuation, the difference must be made up by equity.
- Total debt supporting the deal, including any seller note that is not on full standby, is limited to the valuation amount.
- If the Business Purchase Price (the price minus any owner-occupied real estate, which gets its own appraisal) is over $350,000, or buyer and seller have a close relationship, the valuation must come from an independent Qualified Source. That means an accredited appraiser (ASA, CBA, ABV, CVA or BCA) who is not involved in approving the loan.
- The lender must order it. A valuation prepared for you or for the seller can't be used, so the number in the listing package doesn't count.
- The lender must check the financials the appraiser used against the seller's IRS transcripts.
Worked example
To keep the math clean, assume no real estate and no closing costs or working capital in the loan. Sabe's deal is an Initial Acquisition, so SBA wants at least 10% equity and 1.25x debt service coverage.
| Item | Her plan | After the valuation |
|---|---|---|
| Purchase price | $1,200,000 | $1,200,000 |
| Lender's valuation | N/a | $1,000,000 |
| Debt in the deal | $1,080,000 | Max $1,000,000 |
| Equity needed | $120,000 | $200,000 |
| Cash she has | $120,000 | $120,000 |
| Shortfall | $0 | $80,000 |
Coverage was already a problem. Lanternfig's tax returns show $205,000 a year of cash flow available for debt service. Assume a 10-year term at 10.5% (an assumption for the math, not a quote). A loan of $1,080,000 runs about $14,573 a month, or $174,876 a year. That's 1.17x, under SBA's 1.25x floor for an Initial Acquisition. In this example, the valuation came in low for the same reason: the earnings don't support $1.2M.
Sabe used the report as leverage. The seller agreed to $1,080,000. Now the gap over the valuation is $80,000, her 10% minimum is $108,000, and her $120,000 cash covers both. The loan drops to $960,000, about $12,954 a month or $155,445 a year. Coverage: 1.32x. Deal alive.
Plan B, if the seller won't budge: the SOP lets extra limited equity, such as a seller note, cover a price that beats the valuation, but only on full standby, meaning no principal or interest payments for the life of the 7(a) loan. That's a big ask, so raise it early.
One more detail: the SOP lets the lender pass the valuation's out-of-pocket cost to you, and money you spend on it can count toward your equity injection. Keep the paid invoice.
Do this week
- Before you sign the LOI, ask the broker for three years of tax returns and run coverage yourself at 1.25x.
- Divide the asking price by the business's annual cash flow. If that multiple looks rich next to similar listings, the valuation may come in low.
- Write a price-adjustment clause into the purchase agreement tied to the lender's valuation.
- Ask your lender who their Qualified Source is, the cost, and how long the report usually takes.
- Ask in writing whether they count gap equity toward the 10% minimum or stack it on top. Anything stricter than the SOP is their overlay, not an SBA rule.
- Keep proof of every dollar you pay for the valuation so it counts as equity.
Sources: SBA SOP 50 10 8.1 (with Technical Policy Updates, effective October 1, 2026), Appendix 15 (7(a) Changes of Ownership: Business Purchase Price, Business Valuation Requirements, Qualified Source, equity requirements, Initial Acquisition DSC of 1.25:1), https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs ; 13 CFR 120.202 (loans for changes of ownership), https://www.ecfr.gov/current/title-13/section-120.202 ; SBA 7(a) loans overview, https://www.sba.gov/funding-programs/loans/7a-loans
Verified against SOP 50 10 8.1 text: October 21, 2026.