SBA Reconsiders Goodwill Policy

Larger goodwill loan amounts will be considered on a case by case basis through Aug. 31, the Small Business Administration said in response to lenders concerns.The agency said goodwill is the difference between what a buyer pays for an existing business and the book or fair market value of the assets of the business. Goodwill is one of the riskiest assets that can be financed because it typically has no liquidation value in the event a loan defaults, the SBA said.The guidance allows SBA loans to be used to finance goodwill but limits that financing to no more than half the loan amount, up to $250,000. Until the agency’s new SBA’s standard operating procedures were issued for its loan programs last year, the previous guidance for goodwill was that sellers should finance it when a business was sold. However, as lenders increasingly used SBA-guaranteed loans to finance business sales, the agency issued more specific guidance, which was due to take effect on March 1.Lenders expressed concern that the goodwill limits would effectively stop business acquisitions at a time when many newly unemployed individuals are considering the purchase of a business. The SBA said it will use the next six months to study the types of transactions involving substantial goodwill and consider a revision of the current policy when the semiannual update of SOP 50 10 is published in September.–[email protected]

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