SBA 504 APPRAISAL GUIDELINES
Appraisal Required if:
1. Property being financed is more than $500,000; or
2. Property being financed is $500,000 or less and an appraisal is necessary for evaluation of creditworthiness.
Appraiser Requirements:
1. Independent with no appearance of conflict.
2. Either State-licensed or State Certified, always State Certified with properties over $1 million.
3. Appraiser must be experienced in appropriate industry where property is ‘special purpose.’
APPRAISAL REQUIRED AT APPLICATION WHEN:
1. Equity contribution in property owned more than 2 years is part of Borrower’s contribution;
2. The real estate is the participating banks Other Real Estate Owned property;
3. The purchase is not an arms-length transaction (such as family members); or
4. The seller is carrying back a loan that is part of the Borrower’s contribution.
APPRAISAL REQUIREMENTS:
1. Must be prepared in compliance with Uniform Standards of Professional Appraisal Practice (USPAP).
2. Must be within 12 months of the date the application was approved and prior to closing.
3. Must identify the U.S. Small Business Administration (SBA) as intended user on an appraisal prepared for the bank. May also identify Business Lending Partners as an intended user.
4. Separate values must be allocated to land, building, equipment and business (including intangible assets) when appraisal is for a going-concern value.
APPRAISAL REQUIREMENTS:
Required when used equipment is part of the assets being financed or being purchased from someone other than an equipment dealer, or being refinanced. The equipment appraisal needs to be a written document from a person that is qualified to provide a valuation, is independent of the transaction and has performed an on-site inspection of the equipment. The appraisal must be no more than 12 months prior to application.
CONSTRUCTION PROJECTS
1. If financing is for new construction or the substantial renovation of an existing building (defined as more than 1/3 of purchase price or fair market value at time of application), then the appraisal must estimate market value at completion.
2. After construction is completed, a statement must be provided by appraiser, general contractor, project
architect or construction management firm that building was built with only minor deviations.
APPRAISAL SHORTFALL
If appraisal is less than 95% of the estimated value, then the SBA loan amount must be reduced, additional collateral secured or additional equity provided. If additional collateral or cash is not available, but cash flow coverage is strong and consistent, then SBA can be requested to approve the appraisal.
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