The lender’s valuation can come in under your price

A lender-ordered valuation that lands below your agreed price does not force the seller to cut the price. It caps what the bank will lend against. The gap becomes yours to close, with more cash, with seller paper on standby, with a renegotiated price, or by walking away. Timing and the letter of intent decide which.

The price was agreed weeks ago. Your accountant is halfway through the financials. Then a report you did not commission, from a person you did not hire, reaches the bank with a number under your price. Nothing in the contract changed. Everything in the financing did.

When does the SBA require an independent business valuation instead of the lender’s own analysis?

Under SOP 50 10 8.1, effective October 1, 2026, the lender’s own internal analysis is no longer an option on a change of ownership. Every change of ownership requires an independent valuation from a Qualified Source, requested by and prepared for the lender. Which edition applies turns on when your loan number issues, not when you signed.

Under the prior edition, SOP 50 10 8, the trigger was arithmetic. Take the amount financed from all sources, including the 7(a) loan, any 504 loan and seller financing. Subtract the appraised value of the real estate and equipment financed. If what remained exceeded $250,000, an independent Qualified Source valuation was required. At or below it, the lender could value the business itself unless its credit policy said otherwise.

What remains after that subtraction is, in substance, the goodwill you are buying. The arithmetic still tells you how a credit officer sees your deal. It no longer tells you whether an independent report is coming. It is. The old no-threshold trigger for close relationships, family or existing partners, stops mattering for the same reason.

SOP 50 10 8.1 adds a financial due diligence requirement that did not exist before. For qualifying initial acquisition and business expansion transactions where the business purchase price is $3 million or more, the lender must obtain an independent quality-of-earnings report as well as the valuation. Published lender guidance measures that threshold before equity injection or seller debt and excludes owner-occupied real estate. Below it, such a report is one you may choose to buy, not one the program makes you buy. Ask your lender, in writing, which edition applies and what it will require.

Program rules stated as of September 2026: SBA SOP 50 10 8 (effective June 1, 2025); SBA SOP 50 10 8.1, issued under SBA Information Notice 5000-880695 on August 14, 2026, effective October 1, 2026 for applications receiving an SBA loan number on or after that date. Every SBA rule here, including the valuation trigger, the equity injection, seller note standby and the cap on loan proceeds, is stated as of that date and subject to revision. Confirm the edition in force, in the SOP text SBA publishes free, before relying on any threshold.

Regulation: 13 CFR 120.10 (SBA Loan Program Requirements include statutes, regulations, SBA Standard Operating Procedures, Federal Register notices, and official SBA notices and forms).

Who can perform the valuation, and whose client is the appraiser?

A Qualified Source is an individual who regularly receives compensation for performing business valuations and holds one of a short list of credentials: ASA, CBA, ABV, CVA or BCA. The valuation must be requested by and prepared for the lender. The lender may not use a valuation prepared for the buyer or the seller.

Read that last sentence again. A valuation the seller ordered last year does not count. The broker’s opinion of value does not count. A report you commission does not count, and paying for it does not make you the client. The cost may be passed to you. That is a bill, not a relationship.

The lender sets the scope of work, specific enough for the appraiser to know what is being sold: asset or stock purchase, and what is included, including assumed debt. The report must state the opinion of value, the appraiser’s qualifications and a signed certification, and must allocate separate values to land, building, equipment and intangible assets.

You may pay for the valuation. You are still not the client. Ask at application whether you will receive a copy, and get that answer in writing.

What happens to the loan when the valuation comes in under the purchase price?

A low valuation does not void the purchase agreement. Unless your contract gives you a price adjustment or a financing condition, it obligates the seller to nothing. It limits the financing instead. Loan proceeds for a change of ownership may not exceed the supported value. The difference is yours.

Four routes exist. Only one is pleasant.

The seller-paper route has limits worth knowing before you propose it. As the rules stand now, a complete change of ownership requires an equity injection of at least ten percent of total project costs. A seller note counts toward it only on full standby for the life of the SBA loan, on the standby agreement the lender requires, and only up to half the required injection. Seller debt above the supported value sits outside loan proceeds. Ask early whether your lender allows it. The answer has moved between SOP editions.

Therefore, a shortfall is a funding problem, not an appraisal dispute. Treat it that way.

Why does the appraiser’s number come in below the broker’s adjusted earnings?

Brokers and appraisers measure different things. Adjusted earnings in a confidential information memorandum is a selling number, built by adding back everything the seller argues a new owner will not spend. A Qualified Source valuation is an opinion the lender must defend in its credit file. Documentation survives that test. Argument does not.

• Add-backs without support. Personal travel, a spouse on payroll, the boat. Each needs an invoice, statement or payroll record tied to a dollar amount. Unsupported add-backs come out.
• One-time expenses that keep happening. A legal settlement in each of the last three years is not extraordinary. It is a cost of doing business.
• Owner compensation normalization. The appraiser replaces what the seller paid himself with the cost of hiring someone to do that job. A seller working sixty hours a week for a small salary subsidizes the earnings. That subsidy comes out.
• Related-party rent. If the seller owns the building through another entity and charges below-market rent, the valuation normalizes it to market. Earnings fall.
• Customer concentration. One customer at a large share of revenue raises risk, and risk shows up as a lower multiple or higher discount rate. Disclosure does not cure it.
• The lease. A short remaining term, no renewal option, or a landlord consent the seller never asked for all affect what a buyer would pay. SBA guidance ties lease term to loan term, counting only renewal options the borrower can exercise alone, and lenders apply it with latitude. Ask what yours requires.

None of this is the appraiser being difficult. It is the difference between a number built to attract you and one built to survive review.

An add-back with no document behind it is not earnings. It is an assertion. Rebuild the seller’s schedule yourself, with support attached, before the appraiser asks.

What can you legitimately do to influence the valuation?

Arguing with a completed valuation rarely changes it. Supplying documents before the conclusion is written sometimes does. The appraiser values what can be verified, so the only real lever is evidence: tax returns, bank statements, payroll registers, the customer list, the lease, and any diligence work already done.

Route everything through the lender rather than contacting the appraiser. I ask the lender for the appraiser’s document request list before I ask anyone what the number is likely to be. Send one organized package, not six emails.

• The add-back schedule, line by line, with the supporting document referenced beside each line.
• Your accountant’s diligence work, if commissioned, even though prepared for you and not the lender.
• Corrections of plain factual errors: wrong industry code, wrong employee count, stale interims, a discontinued product line counted as revenue.
• Contracts and renewals that reduce the concentration risk the appraiser would otherwise assume.

Timing is the other lever, and the one buyers forget. Ask when the valuation will be ordered and when the report is expected. Push to have it ordered early enough that a shortfall surfaces while the letter of intent is live. A number landing two weeks before the target closing leaves no room to negotiate.

What letter of intent term protects you when the valuation comes in low?

The protective term is a price adjustment or termination right keyed to the lender-ordered valuation. It reads roughly this way: if the valuation obtained by buyer’s lender supports less than the purchase price, the parties will reduce the price to the supported value or the buyer may walk. Put it in before granting exclusivity.

Letters of intent at this size are usually non-binding as to price and binding as to exclusivity and confidentiality. Usually is not always. Read the binding-effect paragraph rather than assuming it. Expense-allocation and break-fee machinery is a larger-deal habit, uncommon here. Exclusivity is the one thing you have that the seller wants. Hand over sixty or ninety days for nothing and you are asking a favor, not trading for a term.

Draft it with specifics. Name the trigger as the valuation obtained by the lender, not any valuation. Say whether the reduction is automatic or opens a short renegotiation window followed by a termination right, and say which parts bind. A price term in a non-binding section gives you leverage, not a remedy. Carry the logic into the purchase agreement as a condition precedent: closing is conditioned on SBA financing sufficient to fund the price on the structure contemplated. Say who pays, who gets a copy, and what happens to any deposit.

Be careful with good-faith language in a document you think is non-binding. Delaware has enforced an express promise to negotiate in good faith in accordance with a term sheet, and allowed expectation damages for breaking it. Read that narrowly. The binding promise there sat in signed agreements incorporating the term sheet, not in the term sheet itself. Delaware law governs only if your letter of intent says so, and expectation damages are not automatic; they must be proved to a reasonable certainty. What you write can still hold you to the deal you sketched.

Case: SIGA Technologies, Inc. v. PharmAthene, Inc., 67 A.3d 330 (Del. 2013), remanded on damages, expectation damages later affirmed in the same case (Del. 2015).

Here is where the clause cuts against you. A seller who already lived through one lender-ordered appraisal on a dead deal will not accept it twice. That seller has priced the risk and will say the gap is yours to fund in cash. You may also be bidding against a buyer who does not ask. Asking is still right. Decide whether you would rather lose the deal now or after paying for diligence.

What should you do this week if you think the valuation may come in low?

Start with the two things you control: which rules apply, and when the report gets ordered. A buyer who knows the trigger, the timing and the fallback structure before granting exclusivity has a negotiation. A buyer who learns the number two weeks before closing has a choice between cash and no deal.

• Email the lender. Ask which SOP edition applies given when your loan number issues, whether an independent valuation is required, and whether a quality-of-earnings report is required.
• Ask when the valuation is ordered, what the appraiser wants, and whether you get a copy.
• Rebuild the seller’s add-back schedule with a document against every line. Normalize owner compensation to a market salary yourself.
• Model the gap at ninety, eighty-five and eighty percent of the agreed price. Write down, in dollars, where the difference comes from.
• If you have not signed exclusivity, put the valuation adjustment and termination right in the letter of intent now. If you have signed, ask anyway and expect resistance.
• Confirm the SOP in force rather than relying on any article, including this one. A new edition takes effect October 1, 2026, and the governing version is the one in force when your loan number issues.

No one can promise the valuation will support your price. The lender and SBA decide the loan. The appraiser decides the number. What you decide, early, is who carries the risk if it is low.