Value Buddy

When reviewing a CIM for quick-service restaurant deal today, I couldn’t help but laugh. A business shows $1M of EBITDA, sweet. The broker used a multiple of 3.6x, sounds reasonable. Adding back owner’s compensation and calling it adjusted EBITDA, no way! At that point, it’s not adjusted EBITDA — it’s just SDE in disguise, like putting glasses on Super Man and insisting that he's unrecognizable (obviously Clark Kent also needs a suit!). At Value Buddy, we adjust owner compensation to a fair market rate, not wipe it out entirely. And while we run an EBITDA market approach, it’s mostly used as a reference point, not the main driver of value. Stretching the definition of adjusted EBITDA might look good in a pitch deck, but when it hits underwriting, the real numbers always tell the story.

We're thrilled to announce that Value Buddy will be heading to the Southeastern Small Business Lenders Conference (SESBLC) on March 10-12 in Cherokee, NC! This gathering of top SBA lenders, service providers, and industry pros is all about exploring the ever-evolving ??? nature of SBA lending ???. Accuracy, speed, and compliance are more important than ever. So, if you're looking for a valuation partner that keeps your deals on the right path, come find us at SESBLC!

Let's break down the math behind small business acquisitions. Private equity firms paid 8.6x EBITDA for middle-market deals ($50M–$1B) in Q3 2024, according to Capstone Partners. Meanwhile, the median multiple on 1,858 small business deals over the past 12 months was just 3.8x, per BVR's DealStats. The median size of these small business deals was only $368,840. That’s a 56% discount per dollar of earnings. Even for investors looking to deploy more capital, many are rolling up multiple smaller businesses rather than buying one larger business. It’s not just about price—it’s about flexibility, lower leverage requirements, and the ability to build value through scale. Small business M&A is no longer a niche play. The demand is real, and the numbers don’t lie. #sba #businessvaluation #businessacquisition #smallbusiness #middlemarket

The $5M loan cap for SBA 7(a) loans has not been updated since 2010 when it was raised from $2M. While this increase was significant at the time, the business landscape has changed dramatically over the past 14 years, and the cap no longer reflects the realities of today’s small business economy. Here’s why: In 2011, the median seller's discretionary earnings (SDE) of acquired businesses was $75,495, according to DealStats. By 2024, this number had more than doubled to $157,579. Similarly, data from BizBuySell shows the median sales price of small businesses increased from $152,450 in 2011 to $342,745 in 2024. SBA FOIA data reveals a significant increase in loans hitting the $5M threshold—from just 110 in 2011 to 471 in 2024. This trend suggests borrowers are often forced to supplement SBA loans with pari passu financing, a seller's note, or forgo SBA lending entirely for larger acquisitions. For borrowers, the $5M cap can restrict the ability to secure adequate financing, particularly for working capital needs that are critical to running and scaling a business. The amount of working capital needed and the general cost of doing business have increased drastically since 2010 due to inflation. Businesses above the cap are supposed to “graduate” to conventional lending, but many lack the required financials for larger loans, especially given the higher down payments required in traditional lending. Raising the SBA 7(a) loan cap, potentially to $10M, would align the program with today’s economic realities and inflation-adjusted needs. It would also keep the 7(a) program competitive for small business acquisitions and expansions. Unfortunately, raising the cap requires congressional action, and progress has been slow. But with nearly 500 loans already maxing out annually, it’s clear the demand exists. The SBA 7(a) program is one of the most effective tools for small business growth, and updating its limits would ensure it remains relevant and accessible. cc: Ace McGill Timothy Gbur Ted Leverette The Business Buyer Advocate Max Friar Matt Paul John Soldi Hal Stanton Ryan Kroge, MBA, MSF Nader Hashemian, CFA Matthias Smith

For the past 4 years, small business lending has seen some of the most dramatic shifts in recent history. Under former Administrator Isabel Guzman, we watched policies evolve to make SBA financing more accessible—partial change of ownerships became eligible, ESOP financing expanded, and the personal resource test was eliminated. These weren’t just procedural updates; they reshaped how capital flows into the backbone of the American economy. Now, the SBA turns the page as Kelly Loeffler steps in as its 28th Administrator following her 52-46 confirmation by the Senate. Her swearing-in speech made one thing clear: she sees this as more than just an appointment. It’s a mission to reshape how the SBA serves small businesses, and she’s arriving with a plan. Loeffler’s story is one of business and politics colliding. Before stepping into Washington, she built a career in finance, scaling a startup into a Fortune 500 powerhouse. Later, as a U.S. Senator, she leaned into pro-business policies, advocating for tax cuts and deregulation. Now, she’s bringing that mindset to an agency that sits at the intersection of government and entrepreneurship. So what does this mean for lenders, small business owners, and brokers? Expect a shift toward fewer regulations and a streamlined SBA process. Loeffler has signaled a strong push to cut bureaucratic red tape, making it easier for entrepreneurs to access capital without jumping through unnecessary hoops. She’s also vowed to increase oversight on how SBA funds are allocated, with promises of audits to curb waste and fraud. For lenders, this could mean tighter compliance checks but a more business-friendly environment overall.

The SBA hasn’t raised the $5M cap for SBA 7(a) loans since 2010. So what do you do when that dream deal costs $6M, $7M, or more? That’s where Pari Passu lending comes into play. Pari Passu (which means “equal footing” in Latin) pairs a standard SBA loan with an in-kind conventional loan from the same bank. The terms? They mirror each other—same rates, same 10-year amortization—making it feel like one seamless loan, even though it’s technically two. Here are a couple of things to keep in mind: 1?? Working Capital Gets Overlooked It’s easy to budget for the purchase price but forget about the cash you’ll need to run and grow the business afterward. Growth isn’t free—inventory, hiring, or marketing can eat into your reserves fast. 2?? Why Is the Seller Selling? This one’s huge. If the seller “just wants out” and can’t explain why, that’s a red flag. Retirements? Great. Burnout or questionable numbers? Proceed with caution. 3?? Overly Optimistic Projections We all want to believe we’ll knock it out of the park, but buyers who only model growth scenarios can get into trouble when reality hits. Pro tip: When Value Buddy prepares a business valuation, we consider fair market value which looks at how the business would perform with a hypothetical buyer and seller. 4?? Hidden Financial Surprises Tax returns, add-backs, and P&Ls rarely match up perfectly. Sellers might push aggressive adjustments that just don’t hold water. Don’t skip due diligence here. Pari Passu loans make bigger deals possible, but they only work when the numbers—and the story—add up. In my next post, we’ll do a deep dive into the SBA lending data to see if the SBA needs to increase the maximum loan size (spoiler alert: it does).

Elon Musk has officially crossed the line! Earlier this month, he posted that the U.S. Small Business Administration "Should be called the 'Shady Business Administration'. Only 8% of loans are paid back!" Let's set the record straight. For the SBA's flagship 7a program, the cumulative default rate has peaked at only ~6% for loans issued since 2010 — far from the 92% failure rate Elon suggests. In addition to this, the program has helped over 815,000 small businesses and supported nearly 9 million jobs since 2010. And guess what? It doesn’t require a taxpayer subsidy. SBA 7(a) is one of the most efficient federal programs, with borrower and lender fees covering the cost of operations and limited headcount. So, where’s Elon getting this "8% paid back" number? Likely from the Paycheck Protection Program (PPP), which was never designed to be paid back. Out of 11.5 million PPP loans, about 91% were forgiven — because that’s what the program was supposed to do: help businesses keep employees on payroll during COVID. #sba #elonmusk #smallbusiness #businessvaluation Value Buddy

With the creation of the Department of Government Efficiency (DOGE) under the new administration, federal programs like the SBA are facing scrutiny. What could this mean for SBA lending, small businesses, and lenders? Our latest article dives into the risks, resilience, and what stakeholders need to know as this initiative unfolds. #SBA #SmallBusiness #DOGE #NewAdministration

As we reflect on Martin Luther King Jr.'s vision of equality and economic justice, we’re reminded of the transformative impact small businesses have on creating opportunity and closing the wealth gap. Our latest article explores how the SBA is driving historic change, with record financing to Black-, Latino-, and women-owned businesses in 2024. Programs like 7(a) are not just about loans—they’re about empowering entrepreneurs, fostering economic equity, and building dignity through business ownership. #MLKDay #SmallBusiness #EconomicEquality #SBA

We're proud to have helped drive growth in small businesses by supporting over $100M in SBA loans in 2024. Here's to empowering even more small business entrepreneurs and fostering success in 2025. Happy New Year from Value Buddy! #sba #businessvaluation #sba7a #smallbusiness #hny2025