SBA Valuations

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by a searcher from University of Wisconsin - Milwaukee
in United States

7mos ago

SBA Valuations

Could someone walk me through how the independent valuation process with a SBA lender. Some questions: 1) In today's market, what's a high-level, acceptable valuation range for a ~$1M SDE business? 2) Are we capable of going 5x or more? 3) Does a more conservative LTV allow someone to underwrite a higher price multiple? 4) What's the likelihood (high/low) of your loan getting denied based on too lofty of a valuation? I'm curious how this part of underwriting works.

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reply by a lender 7mos ago
from University of Missouri in Denver, CO, USA

Typically with sba deals trade between around 3-4.5x ebitda. Going above 5x is difficult without a significant down payment from what I have seen. There can definitely be a denial based on too lofty of a valuation. Even if sba allows a business to trade for higher than the business valuation we have to justify why this is a good idea.

reply by a lender 7mos ago
from Cornell University in Los Angeles, CA, USA

Hi Anon - nice to meet you. These are excellent questions and worth breaking down clearly. For a business generating around $1M in SDE, valuations in today’s market generally fall between 3.0x and 4.5x SDE, depending on stability, customer concentration, and recurring revenue. Some high-quality businesses can reach 5x, but only when they demonstrate strong margins and predictable growth. If you're looking to compare valuations, Searchfunder actually has a lot of information on its Deal Stats section (redacted. A lower loan-to-value ratio does not automatically justify a higher multiple. SBA lenders primarily look at cash flow, not collateral, so the deal must still maintain at least a 1.25x DSCR after all debt and a reasonable owner salary. If the purchase price is too high relative to earnings, the valuation will likely be adjusted during underwriting. We have a lot experience financing small business acquisitions via the SBA. If you ever need help talking through a deal, I am happy to help. We work with all the major SBA lenders. The bank pays us after your loan closes, so this is a 100% free service for you. You can email me directly at redacted or schedule a meeting with me: redacted. Look forward to chatting!