Whether you’re financing commercial real estate or using it as collateral, you’ll need to determine the property’s value for your business loan request. And, because a property appraisal takes time and money, it’s important to know if and when it will be required.
This overview of SBA 7(a) appraisal requirements will help you determine when an appraisal is required or recommended, and how to move forward with the process.
What are the SBA 7(a) appraisal requirements for commercial real estate?
An SBA 7(a) appraisal is a commercial real estate valuation that’s completed by an independent and licensed property appraiser. It determines the market value of a property. An appraisal for an SBA 7(a) loan is essentially the same as any commercial property appraisal.
The property valuation can help to either justify the purchase price of the property (or its value when renovations are completed) or provide additional collateral security to a loan request. In either case, this assures your lender that the property can be used to secure a loan.
When is an SBA 7(a) appraisal required?
Your lender will let you know if and when an SBA 7(a) appraisal is required as part of the loan application and approval process. The SBA 7(a) appraisal requirements come into play when you’re applying for an SBA 7(a) loan to purchase, renovate, or refinance commercial property for your business. This ensures that the property that you’re financing is at least as valuable as your loan amount.
A different kind of appraisal may also apply if you’re financing or refinancing major assets, such as equipment for your business. It can also be required when you buy an existing business with an SBA 7(a) loan. These appraisals are different from those that are done for commercial real estate.
If you’re planning on pledging property (such as your home) as supplemental collateral for an SBA 7(a) loan, it’s up to your lender to determine whether an appraisal is required.
Do I need a new appraisal for my SBA 7(a) loan?
When a commercial real estate appraisal is required for an SBA 7(a) loan, in most cases, a new appraisal will be needed. Even if a previous appraisal had been completed by= the current owner, your lender may still ask to order a new one. This is primarily because the market for commercial properties is constantly in flux, and the current owner may have made changes that increase or decrease the value.
If the real estate is being used as supplemental collateral for a loan , a recent appraisal may be enough for your lender. Be sure to discuss this with your lender if you think this might be the case for your project.
If you need to order a commercial real estate appraisal, your lender will work with you to set up an appointment with an SBA-approved appraiser. Your lender will likely get quotes from several appraisers, then you’ll select an appraiser and pay the fee to your lender. Then, you’ll set up an appointment for the appraiser to examine the property.
What’s involved in an SBA 7(a) appraisal?
When the appraiser comes to your property, they’ll consider several variables including (but not limited to):
- the location and size of the property
- property use,
- current condition (and/or anticipated value after renovations, in the case of an “as-complete” appraisal)
Marketability is important in case your lender needs to resell/remarket the property.
They’ll also consider the availability of similar properties as well as comparable sales, if available, for real estate that’s similar to your property.
This will all be provided in a written report for you and your lender to review.
What information will the SBA or lender gain from an appraisal?
Your SBA 7(a) lender will look at the property-appraisal results and determine whether your financing request is appropriate – and this varies with every SBA 7(a) loan. Your lender will review the full property value, as well as the purchase price, renovation budget, or refinance amount. They’ll also look at the amount of owner equity you’re offering.
In many cases, the appraisal will match the value of the deal. If, however the property appraisal shows that the real estate is worth less than the deal, then you and your lender can either work out how to close the shortfall (with additional owner equity, for example) or adjust the amount financed.
If neither of these solutions works, you may need to renegotiate the purchase price with the seller or find another commercial property that’s better suited for your business.
Pursuit can help with every step of the SBA 7(a) process
Every day, Pursuit helps small business owners like you get the financing you need to grow your business, including SBA 7(a) loans. We know that every business is unique and our experienced team will work with you to efficiently and effectively navigate the financing process.
Explore more than 15 loan options available through Pursuit, including the popular SBA 7(a) loan program, which can be used for a huge range of financing needs including the purchase or renovation of commercial real estate or to refinance related debt. Then, get in touch to learn more about how we can help you.