Pending SBA Loan Policy

The number of Small Business Administration-approved loans is declining — so far this year, the number of loans is down 50% from this time last year. Many factors have contributed to this decline. Lenders say that high fees associated with SBA loans make them less profitable. And the practice of selling loans to a secondary market, freeing up capital to make new loans, froze last fall along with everything else.

In an effort to reverse this decline, Obama’s economic stimulus package tried to make SBA loans attractive again by reducing fees and increasing the government guarantee on 7(a) loans. However, recent SBA policy guidance regarding goodwill may thwart this effort.

Goodwill is the premium that a business buyer pays to a business owner for the business’ established market share, existing customer base, or premium location. Real estate and tangible assets, like machinery and equipment, are not considered part of goodwill. Under the SBA’s new policy, only 50% of a 7(a) loan can be used to finance goodwill, and that 50% may not be more than $250,000. The reason behind the SBA’s policy is that goodwill is a risky investment. In the event of a loan default and business liquidation, goodwill has no monetary value.

This policy will make it difficult for people to put SBA loans toward many business acquisitions, particularly those whose value is primarily derived from existing customers and name recognition. Because concerns have been raised about the ramifications of this change to its SOP, the SBA has agreed to review on a case-by-case basis loan requests that do not meet its policy, and may revise its policy in September of this year.

In the meantime, many banks and attorneys are taking a closer look at the value of a business’ tangible machinery and equipment assets, hoping that their value will offset the limitations placed on goodwill. The certified appraisers at Present Value can help determine the value of those assets. To order an appraisal, click here.

By: Present Value

Tags: Appraisals, Business Valuation, Machinery & Equipment, Machinery and equipment appraisal, SBA SOP changes
Posted in Business Valuation, Machinery & Equipment, SBA SOP changes | 1 Comment »

Present Value LLC and the upcoming HVCC changes

Earlier this month, we wrote about the Home Valuation Code of Conduct (HVCC) changes that will go into effect on May 1 of this year. You can read the full post here. Essentially, the changes state that lenders seeking a conventional appraisal, as opposed to an FHA appraisal, will be required to find an appraiser through a third party, such as an appraisal management company.  

If you’re seeking an FHA appraisal, your interaction with Present Value won’t change. Because the HVCC changes don’t affect FHA appraisals, lenders can still contact Present Value directly. And more good news – if you’re seeking a conventional appraisal, your interaction with Present Value will also remain the same. Present Value LLC is both an appraiser and an appraisal management company, which means that it can play the role of the third party required by the HVCC changes and save you the step of having to seek out a separate appraisal management company. One of the principles to which Present Value adheres is to provide the best possible customer service. As these changes go into effect and people begin to navigate what the changes mean for them, we hope that the lack of disruption in service you’ll experience by working with Present Value will prove our dedication to this principle.

In other news, have you had the chance to check out our introductory video? Click here to watch.  

By: Present Value

Tags: appraisal management company, Appraisals, FHA appraisals, HVCC, Real estate appraisals
Posted in HVCC, Real Estate Appraisal, Videos | No Comments »

Machinery and Equipment Types of Value Definitions!

The following values are defined in the publication Valuing Machinery and Equipment: The Fundamentals of Appraising Machinery & Technical Assets, Second Edition, by the American Society of Appraisers.

1. Fair Market Value is the estimated amount, expressed in terms of money, that may reasonably be expected for a property in an exchange between a willing buyer and a willing seller, with equity to both, neither under any compulsion to buy or sell, and both fully aware of all relevant facts, as of a specific date.
2. Fair Market Value – Removal is the estimated amount, expressed in terms of money, that may reasonably be expected for an item of property in an exchange between a willing buyer and a willing seller, with equity to both, neither under any compulsion to buy or sell and both fully aware of all relevant facts, considering removal of the property to another location, as of a specific date.
3. Fair Market value in Continued Use is the estimated amount, expressed in terms of money, that may reasonably be expected for a property in an exchange between a willing buyer and a willing seller, with equity to both, neither under any compulsion to buy or sell, and both fully aware of all relevant facts, including installation, as of a specific date and assuming that the business earnings support the value reported. This amount includes all normal direct and indirect costs, such as installation and other assemblage costs to make the property fully operational.
4. Fair Market Value – Installed is the estimated amount, expressed in terms of money, that may reasonably be expected for an installed property in an exchange between a willing buyer and a willing seller, with equity to both, neither under any compulsion to buy or sell, and both fully aware of all relevant facts, including installation, as of a specific date. This amount includes all normal direct and indirect costs, such as installation and other assemblage costs, necessary to make the property fully operational.
5. Orderly Liquidation Value is the estimated gross amount, expressed in terms of money, that could be typically realized from a liquidation sale, given a reasonable period of time to find a purchaser (or purchasers), with the seller being compelled to sell on an as-is, where-is basis, as of a specific date.
6. Forced Liquidation Value is the estimated gross amount, expressed in terms of money, that could typically be realized from a properly advertised and conducted public auction, with the seller being compelled to sell with a sense of immediacy on an as-is , where-is basis, as of a specific date.
7. Liquidation Value in Place is the estimated gross amount, expressed in terms of money, that could typically be realized from a failed facility, assuming that the entire facility would be sold intact with a limited time to complete the sale, as of a specific date.
8. Salvage Value is the estimated amount, expressed in terms of money, that may be expected for the whole property or a component of the whole property that is retired from service for possible use elsewhere, as of a specific date.
9. Scrap Value is the estimated amount, expressed in terms of money, that could be realized for the property if it were sold for its material content, not for a productive use, as of a specific date.
10. Insurance Cost New is the replacement or reproduction cost new as defined in the insurance policy less the cost new of the items specifically excluded in the policy, as of a specific date.
11. Insurable Value Depreciated is the insurance replacement or reproduction cost new less accrued depreciation considered for insurance purposes, as defined in the insurance policy or other agreements, as of a specific date.

Present Value LLC

Tags: Appraisals, Machinery & Equipment, Value Definitions
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