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Professional Standards and Business Valuation
for SBA Loan Purposes

The following review and analysis of the various professional business valuation standards from the four major appraisal organizations as referenced in SOP50-10(5)(B) is presented as background material for lenders interested in understanding the "alphabet soup" associated with the business appraisal profession today.


The four organizations referenced in SOP50-10(5) and their respective standards are known as follows:

•The American Institute of Certified Public Accountants (AICPA).

Statement on Standards for Valuation Services or SSVS 1-Valuation of aBusiness, Business Ownership Interest, or Intangible Assets

•The American Society of Appraisers (ASA).

Business Valuation Standards.

•The Institute of Business Appraisers (IBA).

IBA Business Appraisal Standards

•The National Association of Certified Valuation Analysts (NACVA).

NACVA Professional Standards

Note that the introduction of SOP50-10(5)(A) as of March 1st, 2009  has added another category of eligible business appraisers through the following verbiage (found on pages 181 and 182):

c) A "qualified source" is an individual who regularly receives compensation for business valuations and is either:

(1) Accredited by a recognized organization; or

(2) A licensed Certified Public Accountant (CPA)that performs the business

valuation in accordance with the "Statement on Standards for Valuation Services" published by the American Institute of Certified Public Accountants (AICPA).

(3) Some recognized organizations and the accreditations they provide include:

(a) Accredited Senior Appraiser (ASA) accredited through the American Society of Appraisers;

(b) Certified Business Appraiser (CBA) accredited through the Institute of Business Appraisers;

(c) Accredited in Business Valuation (ABV) accredited through the American Institute of Certified Public Accountants; and

(d) Certified Valuation Analyst (CVA) accredited through the National Association of Certified Valuation Analysts.

When reading and interpreting the professional standards (including Uniform Standards of Professional Appraisal Practice or USPAP), it is helpful to bear the following general facts in mind:

1) Each set of standards is geared towards addressing the two primary valuation components of:

  1. Appraisal Analysis and Development
    performing the actual valuation analysis and applications

  2. Appraisal Reporting and Presentation
    communicating the final written report content

2) Each set of standards are considered to be the MINIMUM standards or requirements, with expanded coverage often necessary or required (depending in part on the "scope of work" agreed upon by the appraiser and the client.

3) In general, each set includes a "comprehensive" or "complete" or "full" appraisal report which serves as the benchmark for preparation of any "lesser" reports.

4) Each organization with professional standards

  1. Participated in the development of the International Glossary of Business Valuation Terms.
  2. Relies explicitly on the IRS Revenue Ruling 59-60 for guidance as to how to properly value privately-held business interests or intangible assets.*
  3. Pays heed to USPAPto one degree or another, e.g. the ASA explicitly requires conformity with USPAP Standard 10.

5) In general, each set of standards is more or less consistent with USPAP and USPAP compliance could be cited via "jurisdictional exception", i.e. if the SBA requires USPAP compliance, this could "trump" the other organizations' professional standards for the specific use at hand. For example the AICPA's SSVS 1 includes the following:

  1. Introduction and Scope Section (Number 10)
  2. If any part of this Statement differs from published governmental, judicial, or accounting authority, or such authority specifies valuation development procedures or valuation reporting procedures, then the valuation analyst should follow the applicable published authority or stated procedures with respect to that part applicable to the valuation in which the member is engaged. The other parts of this Statement continue in full force and effect (Valuation Services Interpretation No. 1).

*Although the ASA does not directly reference the 8 valuation factors stipulated in R.R. 59-60, these factors are nonetheless relevant for almost all business appraisal engagements.

USPAP is Fifth Source of Professional Standards

There is a de facto fifth set of "professional business valuation standards" which have their roots in the appraisal of real property and the Savings and Loan Crisis of the late 1980's and early 1990's. Congress had mandated the creation of the Appraisal Foundation, which in turn is responsible for developing and issuing "Uniform Standards of Professional Appraisal Practice" or USPAP. Although still primarily focused on real property, the personal property or business valuation side of the standards have grown over the years with Standards Number 9 and Number 10 specifically directed towards the valuation of business interests and intangible assets.

Similarities and Differences Among Various Appraisal Report Types

It can be said that there are four primary report types available to clients seeking business appraisal services. Said reports will vary in terms of either "appraisal development" or "appraisal reporting" or both, with the client and/or the appraiser determining the optimal scope of work and reporting option.

Although precise terms used from one organization to the next will vary, these four report types are generally classified as follows (in order of depth and breadth of analysis and reporting):

Four Generic Report Types

(Ranked by Depth/Breadth of Analysis/Reporting)

1) Complete

2) Summary

3) Calculation/Preliminary

4) Oral

Complete and Summary Reports

As mentioned, all BV standards recognize some type of "complete" or "comprehensive" appraisal report which are similar with respect to the type and amount of information, analysis and appraiser support incorporated into the written report. Each organization also has a "lesser" report type described as "summary" or "limited", etc., which primarily serves to economize on the quantity (and quality) of analysis which is written into the final report.

Importantly, both the "complete" and the "summary" versions (whatever they might be called - see the provided table for specific terminology) MUST be based on the same degree of company, industry and economic analysis as well as financial and valuation analysis, i.e. the development of the appraisal's conclusion of value does not differ between these two "reporting" options (except for the ASA).

This is true for the AICPA, NACVA, IBA and USPAP whereas the ASA differentiates the complete (appraisal) and summary (limited appraisal) versions in part via the selection and use of limited valuation procedures or the limited collection of data (as opposed to different degrees of reporting).

Interestingly, Paragraph VI of the ASA's BVS-I (General Requirements for Developing a Business Valuation) states that reports which include a conclusion of value (all appraisal reports and certain limited appraisal reports):

"Must meet the requirements of Standard 10 of the Uniform Standards of Professional Appraisal Practice."

In addition, Paragraph I (Preamble) of ASA BVS-VIII (Comprehensive Written Business Valuation Report) states that:

"A business valuation report may be less comprehensive in content provided that the report complies with the minimum content required by Standard 10.2 of USPAP."

Standards Rule 10-2 states that each written appraisal report ..must be prepared in accordance with...Appraisal Report or Restricted Use Appraisal Report. Because the Restricted Use Appraisal Report should include the same type and degree of valuation analysis as an Appraisal Report, this would seem to contradict the ASA's allowance for limited appraisal reports with "certain excluded procedures". When it comes to performing business appraisals for the SBA, it is considered appropriate to ensure USPAP compliance above all else (by way of the jurisdictional exception rule which permeates the appraisal realm).

Calculation and Oral Reports

Besides the various "complete" and "summary" reports, there is a third type of report (called a calculation report or a preliminary report) which may not include the full array of valuation approaches and company/industry/economic and financial/valuation analysis that are required for the first two report types.

The final type of report is an "oral report", which is comparable to the comprehensive and summary reports in terms of the amount of analysis performed - but differs in terms of the "reporting" requirement (the results are presented orally or verbally). This report option is extremely rare.

USPAP Reports

It is important to bear in mind that the terminology associated with real property appraisal reports DIFFERS from the terminology used for personal property or business appraisal reports. For example, real property appraisal reports (Standard 2-2) may be a self-contained appraisal, summary appraisal or restricted appraisal whereas business appraisal reports (Standard 10-2) may be either an appraisal report or a restricted use appraisal report (only 2 options for business appraisals).

Accordingly, USPAP allows two different business valuation report types known as a "restricted use appraisal report" versus simply an "appraisal report". The distinctions between the two are comparable to the "summary" versus "comprehensive" comparison presented earlier, i.e. the difference is based on the type and amount of analysis and information that is written into the report.

As was the case with the four sets of professional standards referred to earlier (with the exception of the ASA), there is NO difference between the restricted appraisal and the appraisal report in regards to the quantity and quality of underlying analysis which must take place. In both cases, the valuator must perform a thorough review and analysis of the company, industry, economy, financial performance and valuation methodologies to reach the conclusion of value.

In short, the "restricted use report" allows the appraiser to "state" key attributes whereas the more thorough "appraisal report" requires the appraiser to "describe and summarize" the key attributes.  The restricted use report should reference the appraiser's workfiles whereas the appraisal report will include all relevant considerations, analyses and details in the written report. Rather than stating conclusions, the appraisal report presents, illustrates, analyzes and explains the valuation procedures and valuation conclusions.

The following matrix presents the various report types associated with the major business appraisal organizations including the Appraisal Foundation (USPAP):

Overview of Primary Report Types by Professional Organization

Organization Complete* Summary* Non-Appraisal
IBA Formal Report** Letter Report Preliminary Report
ASA Comprehensive Limited Calculation
NACVA Detailed Summary Calculation
AICPA Detailed Summary Calculation
USPAP Appraisal Report Restricted Use Not Applicable

*Oral reports may be "complete" or "summary" in nature.

**Also described as a comprehensive report.

Recall that the difference between the "complete" and the "summary" option lies SOLELY in the amount of information which is REPORTED to the client in the written report (versus maintained in the appraiser's workfiles). Both options require the full set of appraisal methodologies needed to reach a "conclusion of value" (with the potential exception of the ASA, which appears to allows limited data collection and limited valuation procedures in its "limited" appraisal BUT also requires compliance with USPAP 10-2).

The "non-appraisal" option fails to meet the "standards" of a full appraisal analysis and will involve something LESS than a full set of appraisal analyses and methodologies (as agreed between appraiser and client) and something less than a "complete" written appraisal report. Recall that the AICPA, NACVA and ASA now refer to these engagements as a "calculation engagement" which generates a "calculation value" (as opposed to a "conclusion of value". The IBA refers to such reports as a "preliminary appraisal" and the USPAP does not allow such abbreviated appraisals (except perhaps as a consulting service).

The ASA utilizes verbiage which is helpful in terms of understanding the differences between a complete, summary and calculation engagement in terms of their respective objectives (as follows):

Comprehensive Appraisal

To express an unambiguous opinion as to the value of a business..which opinion is supported by all the procedures that the appraiser deems to be relevant to the valuation.

Limited Appraisal

To express an estimate as to the value of a business..excluding some additional procedures that are required in a (comprehensive) appraisal.


To provide an approximate indication of value of a business...based on the performance of limited procedures agreed upon by the appraiser and the client.

To conclude this section, I will summarize the key standards sections which relate to the reporting of the "complete" and "summary" versions of appraisals from the various organizations including the Appraisal Foundation (USPAP):

Pertinent Standards for Complete Appraisal by Organization

Complete Appraisal Format Summary Appraisal Format
Organization Pertinent Appraisal Standards Pertinent Appraisal Standards
IBA Standard 5 Standard 4
ASA BVS VIII and USPAP 10-2(a) BVS VIII and USPAP 10-2(b)
NACVA Section 4.3 b Section 4.3 a
AICPA Section 51 Section 71
USPAP Section 10-2 (a) USPAP 10-2 (b)

Note that these standards apply primarily to the appraisal reporting requirements as opposed to the appraisal development requirements. This topic will be addressed in the "next analysis". To help illustrate the differences between a "complete" and a "summary" report format, part of Section 4.3 from NACVA's standards is presented next. Note that the "detailed" (complete) version contains additional types of analyses beyond those in the "summary" version.

NACVA Section 4.3: Report Contents (Detailed versus Summary)

4.3 Contents of Report. A report expressing a Conclusion of Value may be presented in

either a Summary or Detailed Report. A Calculated Value must be presented in a Calculation Report. The member should disclose the report type (Summary, Detailed, or Calculation). Reports should be carefully prepared, communicate the results and identify the information relied upon in the valuation process. The wording used in the report should effectively communicate important thoughts, methods and reasoning, as well as identify the supporting documentation in a simple and concise manner, so that the user of the report can replicate the process followed by the member.

a. Summary Reports. Summary Reports should set forth the Conclusion of Value and the following minimum information concerning the Valuation Engagement and its results:

1) Identification of the subject being valued;

2) Description of the interest being valued;

3) Ownership size, nature, restrictions and agreements;

4) Valuation date;

5) Report date;

6) Purpose and use of the valuation;

7) Definition of the standard of value;

8) Identification of the premise of value;

9) Valuation approaches and method(s) utilized by the member;

10) Historical financial statement summaries, when applicable;

11) Identification of the assumptions, limiting conditions and scope limitations;

12) Reliance on a specialist;

13) Jurisdictional exceptions and requirements;

14) Limitations on use of the report-all valuation services vary as to specific assumptions, limiting conditions and scope, therefore, the member must identify material matters considered;

15) Sources of information;

16) A statement of Financial Interest;

17) Whether or not member is obligated to update the report;

18) Disclosure of any contingency fee;

19) Qualifications of member; and

20) Responsible member signature-the member who has primary responsibility for the determination of value must sign or be identified in the report;

b. Detailed Reports. Detailed Reports may include the following additional information in addition to that identified in paragraph 4.3 a:

1) Non-operating assets and liabilities;

2) Adjustments to historical financial statements, when applicable;

3) Adjusted financial statement summaries, when applicable;

4) Projected/forecasted financial statements including the underlying assumptions, when applicable;

5) Valuation approaches and method(s) considered by the member;

6) A description of the fundamental analysis; and

7) Other items that influence the valuation.

What Rises to the SBA's "Standards" and SOP50-10(5)(B)?

With respect to valuation for SBA purposes, it is this author's opinion that only a "complete" appraisal will meet the onus of the SOP50-10(5)(B) requirements. As stated in the "A" version of this SOP on page 181 in the "Business Valuation Requirements - Change of Ownership" section:

"A business valuation assists the lender and the buyer in making the determination that the seller's asking price is supported by historic operations."

If the purpose of the appraisal is to assist both the lender and the borrower with determining the viability of a given transaction (as described in SOP50-10(5)(A)), the "summary" report option falls short on two different accounts:

1) The "summary" report will not include a full disclosure and explanation as to how the value result was obtained, e.g. how earnings were normalized, how multiples and cap rates were developed and justified, how the terms of the purchase agreement affect the valuation outcome and much, much more.

2) The USPAP equivalent of the "summary" business appraisal is called a "restricted use appraisal", whereby such reports are deemed acceptable ONLY when there is one intended user (as opposed to the three intended users of an SBA-related appraisal in the form of the lender, borrower and the SBA).

Accordingly and unless formally addressed in a revised SOP50-10(5) document, it is only the "complete" appraisal option (called "appraisal report" via USPAP) which will satisfy current SBA regulations as they are written.


SBA Lender's Business Valuation Review Checklist

NOTE: This review checklist was created by Mr. Steve Mize of Gulf Coast Financial, a leading business appraisal firm specializing in SBA-related business valuations.

General Engagement Information

1) What is the name of the company being valued?

2) What is the name of the appraisal firm providing the appraisal?

3) Who is the appraiser who signed the report?

4) What is his/her designation?

5) Is there a "list of appraiser's qualifications" and if so, does it appear the appraiser is qualified?

a. Yes No

6) What is the date of the valuation?

7) What is the date of the report?

Purpose, Use & Scope

1) Is the purpose of the valuation consistent with the engagement?

a. Yes No

2) Is the standard of value fair market value?

a. (Fair Market Value is SBA's preferred standard of value)

b. Yes No

3) Is the scope adequate for the purpose of the valuation?

a. Yes No

4) Is there a certification page with a signature?

a. Yes No

5) Are sources adequately listed?

a. Yes No

6) Did the appraiser interview management or appropriate parties?

a. Yes No

Report Content

1) Does the appraiser adequately describe the Company, its history, products, services, market, customers, management & employees, competition and general risks?

a. Yes No

2) Does the appraiser adequately describe the economic outlook, industry outlook and how these may impact the value?

a. Yes No

3) Does the appraiser adequately show the Company's historical income statements and balance sheets (if missing, an explanation of its absence should be included)?

a. Yes No

4) Does the appraiser adequately show comparative ratio analysis?

a. Yes No

5) Does the appraiser adequately explain the financial statements, its trends and how they may impact value?

a. Yes No

Report Methodology & Conclusion

1) Does the appraiser discuss the 3 approaches to value (Asset, Income & Market) and explain which methods were considered / not considered and why?

a. Yes No

2) Are the various approaches to value explained?

a. Yes No

3) Were discounts and premiums explained?

a. Yes No

4) Is the relative degree of weight given to each approach adequately explained?

a. Yes No

5) Does the appraiser provide a test of reasonableness?

a. Yes No

6) Does the value and conclusions appear reasonable?

a. Yes No


1) No signature present.

2) Appraiser does not have an appraisal designation or is not qualified.

3) Report is too limited where a reasonable value cannot be calculated.

4) Report is too brief where readers cannot adequately review calculations & conclusions.

5) Appraiser is biased or was engaged by a party other than the lender.

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