SBA SOP 50 10 5(A) Changes in Effect This Week

The Small Business Administration (SBA) announced revisions to SOP 50 10 5(A) that went into effect on March 1, 2009. Because the number of 7(a) loans being used for business acquisition has increased, the SBA determined that more specific guidance on the financing of goodwill was appropriate and made additions to SOP 50 10 5(A).

According to the SBA’s definition, goodwill is created when an existing business is acquired and the acquiring entity pays more for the business than the book value of the business’s assets. By paying a premium for an established business, the buyer is relying on the existing business’s established market share to continue because of an established customer base or a premium location.

Because the agency doesn’t have data that specifically identifies goodwill in business acquisitions and there are limited options for borrowers who wish to finance business acquisitions involving a substantial amount of goodwill, the SBA decided that it will review loan applications that do not meet the guidance in the SOP.

For loan applications where the request for 7(a) financing of goodwill exceeds the limits set in SOP 50 10 5(A) because the buyer and/or the seller are unable to finance the amount of goodwill that exceeds the SOP limit, the lender may submit the application to the Standard 7a Loan Guaranty Processing Center (LGPC) for the SBA’s consideration.

The SBA announced that this process will be in place through August 31, 2009. After that time, the SBA will provide further guidance on this issue. During this six-month period, the SBA will collect information from the applications submitted to the LGPC and analyze the types of businesses and transaction structures submitted.

Within this six-month window, it will be critical for lenders and business brokers to get an accurate appraisal of a business’s book value to determine if the SOP 50 10 5(A) revisions could apply to your business transaction. To order a business appraisal, click here.

Tags: business appraisals, SBA SOP changes, SOP 50 10 5(A)

This entry was posted on Tuesday, March 3rd, 2009 at 3:24 pm and is filed under business appraisals. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.