The SBA SOP 50 10 5(I) calls for an independent Business Appraisal to be performed under certain situations. This term is derived from USPAP (Uniform Standards of Professional Appraisal Practice) which many lenders are familiar with when dealing with real estate. It’s important to note that Affirmed’s SBA business valuation reports provide a Conclusion of Value as defined by NACVA (National Association of Valuation Analysts) and the Institute of Business Appraisers. A Conclusion of Value valuation engagement is consistent with what USPAP calls a Business Appraisal and required by the SBA. Per NACVA, a "Valuation Engagement requires that a member apply valuation approaches or methods deemed in the member’s professional judgment to be appropriate under the circumstances and results in a Conclusion of Value".
In contrast, many business valuation people provide what is known as a Calculation Engagement or Calculation of Value which is a lesser type of valuation compared to a Conclusion of Value/Business Appraisal. When a calculation engagement is performed, the valuator must include a statement such as “This Calculation Engagement did not include all the procedures required for a Conclusion of Value. Had a Conclusion of Value been determined, the results may have been different."
Also, per NACVA’s 2013 comment on this issue “No valuation analyst would suggest that a calculation engagement rises to the level of an appraisal, as that term is defined under USPAP. As such the limitations imposed by virtue of the agreed-upon approaches, methodologies and procedures are likely to fall short of meeting the professional standards promulgated by any organization, including USPAP.”
In short, if you are a lender ordering a business valuation for SBA lending purposes, make sure the report provided is consistent with a Business Appraisal with a Conclusion of Value and not a Calculation Engagement with a Calculation of Value.