For SBA lenders
Short answer
The SBA evaluates the reasonableness of goodwill in a 7(a) change-of-ownership by requiring an independent business valuation for transactions over $500,000. This valuation must justify the purchase price, including the goodwill component, based on market comparables and the business's earnings capacity.
For change-of-ownership transactions, the purchase price, including any amount allocated to goodwill, must be supported by a reasonable valuation. The SBA relies on independent valuations to ensure that the goodwill component is not excessive and that the overall transaction reflects fair market value, protecting against overvaluation that could jeopardize loan repayment.
A $1.5 million business acquisition includes $500,000 attributed to goodwill. The lender requires an independent business valuation from a qualified appraiser. The valuation report analyzes similar business sales and the target company's historical earnings to justify the $1.5 million purchase price, implicitly supporting the $500,000 goodwill component.
Insider move
Lenders must ensure the independent valuation adequately supports the entire purchase price, including goodwill. If the valuation does not justify the goodwill, or if the purchase price exceeds the valuation, the loan could be deemed imprudently underwritten, leading to a repair or denial of the SBA guaranty.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
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.
More on change-of-ownership underwriting
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