For SBA lenders
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.
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.
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.
Insider move
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.
7(a) Loan Program — Terms, Conditions, and Eligibility
U.S. Small Business Administration · Official SBA source
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
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