When it comes time to grow your small business, especially through acquisitions, mergers, or refinancing, it is important to understand your company’s value. That is where business evaluation comes in! It is essential to know your business’s worth, especially if you are considering a Small Business Administration (SBA) loan.
At Business Funding Group (BFG), we work with established businesses to prepare them for SBA financing. Our expert guidance makes the process less intimidating. We advise you on what lenders look for and how to package your loan for the best chance of success.
Why Do Lenders Care About a Business’s Value?
Lenders prefer to have a clear understanding of your business’s value before deciding whether to extend a loan. They want evidence of your company’s stability, profitability, and loan-worthiness.
To assess the value of your business, lenders consider profitability, assets, and market potential. These factors help determine your ability to repay the loan, the security of the loan, and the reliability of your revenue stream.
If you are planning on pursuing a loan for expansion, an acquisition, or a partner buyout, the first step is to analyze what your business is worth.
Key Valuation Methods
Lenders use several different approaches to appraise your enterprise. The formula used depends on the nature of your business. Sometimes, lenders will combine methods to get a comprehensive understanding.
Some of the most common methods include earnings before interest, taxes, depreciation, and amortization (EBITDA) multiples, asset-based valuation, and comparable sales.
EBITDA Multiples
EBITDA is a common measure that lenders use when determining your company’s value. You must maintain a consistent cash flow because lenders multiply every dollar of EBITDA when estimating your value.
Let us assume that your business has an EBITDA of $500k per year. If the industry standard is multiplied by three, it would result in a business value of approximately $1.5M.
Asset-Based Valuation
This method is suitable for businesses that have substantial equipment, inventory, or property. The value of tangible assets can help support the loan application.
Comparable Sales
In some industries, comparing recent sales of similar companies helps determine fair value.
When To Evaluate Your Business
We encourage you to value your company early if you are considering SBA financing. As experts in the SBA loan process, we have seen how waiting until the application stage could lead to delays or rejections. Being prepared and knowing the value of your company in advance gives you an advantage.
Your valuation helps to give lenders confidence in extending a loan for:
- Acquisitions: A clear valuation justifies the purchase price
- Partner buyouts: The valuation establishes fairness and prevents disputes
- Refinancing: It demonstrates the business can sustain new terms
- Working capital or expansion: It confirms that the cash flow supports growth plans
Call BFG Today To Schedule Your Company Appraisal
At BFG, we help profitable businesses get the SBA loans they need without unnecessary stress. As experts in the industry, there are countless benefits of working with us:
- We match you with lenders from our vast network for a great fit
- We understand less competitive niches, such as law practices and e-commerce companies
- You pay nothing if your loan does not close
- We support you from the start of the process to the loan closing
A strong business evaluation positions you for loan success! Whether you are expanding, acquiring, or buying out a partner, we can advise you on valuation and the best loan package.
Contact us today to determine the value of your business and how to position yourself for SBA financing. Give us a call or fill out our application online.
(917) 593-5013