Business Valuation for SBA Lending

Doeren Mayhew was retained to provide a business valuation for purposes of obtaining a loan from the Small Business Administration (SBA). The SBA loan was utilized for financing purposes related to a pending equity transaction. Revenues of the subject company were $4 million at the time of the valuation. The subject company specialized in home remodeling, including kitchens, bathrooms, additions and basements.

The business valuation required research related to the economic and industry specific conditions related to the company. Specific factors considered were trends in building permits issued, condition of the local real estate market, trends in interest rates, and trends in local employment and household income.

Among other documents, Doeren Mayhew reviewed income tax returns and internal financial statements, and relied upon input from the client in order to analyze the cash flows of the company. Throughout the engagement, Doeren Mayhew met with the business owner to discuss the operations and financial condition of the business, and also had frequent communication with the business owner via email to address specific questions.

The three primary approaches to value a business (asset, income and market) were reviewed and utilized in this engagement.  Specific factors or adjustments considered within each approach based on the nature of the business were as follows:

• Asset Approach – the adjusted book value method was utilized taking into consideration the present value of the backlog (or work-in-progress).
• Income Approach – a capitalization of earnings method was used. This method considered the various risk components of the subject company including the management structure, local economic conditions, conditions of the local real estate market and the historical financial results of the business.
• Market Approach – the guideline transaction method was used by gathering information from DealStats on similar companies which have recently been bought or sold.

Doeren Mayhew provided a summary valuation report to the client in order to obtain financing for the equity transaction. A final valuation report was provided within seven business days of receiving the information required.  The valuation report was prepared in accordance with the SBA’s Standard Operating Procedures per SBA SOP 50 10 5(J) and the Uniform Standards of Professional Appraisal Practice (USPAP).