{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/how-does-a-lender-evaluate-the-reasonableness-of-the-purchase-price-allocation-for-a-7-a-a","api_url":"https://dealroom.so/api/public/questions/how-does-a-lender-evaluate-the-reasonableness-of-the-purchase-price-allocation-for-a-7-a-a","question":"How does a lender evaluate the reasonableness of the purchase price allocation for a 7(a) acquisition?","topic":"Change-of-Ownership Underwriting","audience":"lender","bot_mode":"lender","short_answer":"A lender evaluates the reasonableness of purchase price allocation by comparing it to an independent business valuation and ensuring it reflects the fair market value of specific assets, especially goodwill, and aligns with the deal structure.","rule":"The purchase price allocation (PPA) dictates how the total acquisition price is assigned to various assets (e.g., equipment, inventory, real estate, goodwill). For 7(a) loans, lenders must ensure this allocation is reasonable and supported by the business valuation. A PPA that overvalues hard assets or undervalues goodwill can misrepresent collateral or eligibility.","example":"A business is acquired for $1.5 million. The PPA assigns $1 million to equipment and $500,000 to goodwill. The independent valuation appraisal, however, only values the equipment at $600,000. The lender flags this discrepancy, requiring an adjusted PPA or justification, as it overstates collateral and undervalues goodwill.","what_lenders_check":"Lenders are concerned with ensuring the PPA accurately reflects the fair market value of all assets. An unreasonable PPA can mask excessive goodwill, inflate collateral values, or distort the true financial health of the acquisition. The PPA must align with the independent valuation to protect the guaranty.","required_facts":["Purchase price allocation","Independent valuation","Fair market value","Goodwill","Asset values"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","7(a) Loan Program Terms, Conditions, and Eligibility"],"official_sources":[{"title":"SOP 50 10 - Lender and Development Company Loan Programs","url":"https://www.sba.gov/sites/default/files/2025-05/SOP%2050%2010%208%20Technical%20Updates%20effective%206.1.2025.docx"},{"title":"7(a) Loan Program Terms, Conditions, and Eligibility","url":"https://www.sba.gov/partners/lenders/7a-loan-program/terms-conditions-eligibility"}],"related_questions":[{"question":"What specific due diligence is required for a 7(a) loan involving a change of ownership between related parties?","url":"https://dealroom.so/for-lenders/questions/what-specific-due-diligence-is-required-for-a-7-a-loan-involving-a-change-of-ownership-bet"},{"question":"How does a lender evaluate the management experience of a buyer who has no prior experience in the target industry?","url":"https://dealroom.so/for-lenders/questions/how-does-a-lender-evaluate-the-management-experience-of-a-buyer-who-has-no-prior-experienc"},{"question":"What happens if the business being acquired has significant outstanding tax liabilities at closing?","url":"https://dealroom.so/for-lenders/questions/what-happens-if-the-business-being-acquired-has-significant-outstanding-tax-liabilities-at"},{"question":"When is an independent business appraisal required for a change of ownership transaction exceeding $500,000?","url":"https://dealroom.so/for-lenders/questions/when-is-an-independent-business-appraisal-required-for-a-change-of-ownership-transaction-e"},{"question":"How does the SBA evaluate the reasonableness of goodwill in a 7(a) change-of-ownership transaction?","url":"https://dealroom.so/for-lenders/questions/how-does-the-sba-evaluate-the-reasonableness-of-goodwill-in-a-7-a-change-of-ownership-tran"},{"question":"What is the primary factor in determining SBA 7(a) loan eligibility for a business acquisition when the seller retains a minority equity stake?","url":"https://dealroom.so/for-lenders/questions/what-is-the-primary-factor-in-determining-sba-7-a-loan-eligibility-for-a-business-acquisit"}],"related_terms":[{"term":"Purchase price allocation","url":"https://dealroom.so/glossary/purchase-price-allocation"},{"term":"Purchase price","url":"https://dealroom.so/glossary/purchase-price"},{"term":"7(a) loan","url":"https://dealroom.so/glossary/7a-loan"},{"term":"Acceleration of the Note","url":"https://dealroom.so/glossary/acceleration-of-the-note"},{"term":"SBA 7(a) program","url":"https://dealroom.so/glossary/sba-7-a-program"},{"term":"Standard 7(a) loan","url":"https://dealroom.so/glossary/standard-7-a-loan"}],"related_tools":[{"name":"SBA 7(a) payment & fee calculator","url":"https://dealroom.so/sba-7a/calculator"},{"name":"Find an active SBA 7(a) lender","url":"https://dealroom.so/lenders"}],"data_freshness":{"last_reviewed":"2026-06-13","sba_rule_sources_checked_through":"2026-06-13"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/for-lenders/questions/how-does-a-lender-evaluate-the-reasonableness-of-the-purchase-price-allocation-for-a-7-a-a","source_type":"DealRoom Q&A"},"caveats":["Grounded in the current SBA rulebook; verify against official sources before relying on it for a live deal.","Not legal, tax, or financial advice and not an approval decision."]}