How does the SBA 7(a) Loan Program Apply to the COVID-19 Stimulus Package?

The Senate has approved a colossal $2 trillion stimulus package.  The key feature of the package is a one-time $1,200 direct payment to adults; however, the legislation included numerous proposals for aimed to help small businesses experiencing adverse impacts from the pandemic.  The highlight of the small business relief is a $350 billion small business loan program that will be overseen by the Small Business Administration, which will provide aid to support companies in paying fixed debts, payroll, accounts payable, and any additional bills that are unable to be paid because of COVID-19’s impact.

Who Qualifies?

First, bear in mind that while you may fit into the below criteria, the lender will actually be the one deciding whether they are willing to underwrite your proposed loan.   Here are some of the typical requirements for SBA loans:

  • The business must be “small” as defined by the SBA’s small business size standards
  • The business must not engage in “prohibited activities” – of which there is a laundry list
  • The proceeds of the loan must be used for an eligible purpose

Additional requirements as it relates to the COVID-19 Stimulus are:

  • Prove the Company has been severely impacted by the COVID-19 Virus

Business Valuation Requirements for SBA Loans

All SBA loans that have over $250,000 in goodwill (or “blue sky” as some people say) require an independent, third party valuation.  Some lenders require that all SBA loans receive a third party valuation.  When it comes to the valuation itself:

  • The bank must engage the valuation firm (not the borrower or seller)
  • The person performing the valuation must be “qualified” – more on that in a minute

The definition of qualified has changed some over the years as the SBA has refined its requirements.  Generally speaking, qualified means that the person performing the valuation is credentialed and conducts valuations on a routine basis.  The most recognized qualfied credentials include:

  • Certified Valuation Analysts (CVA)
  • Acreddited Senior Appraiser (ASA)

Note that CPA’s have specifically been excluded from the list of qualified sources unless they have a valuation specific credential.  This makes sense.  Business valuation is a very separate field from accounting, so  unless a CPA is routinely performing valuation work then a CPA credential alone would not qualify someone to perform such work.

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