What happens if an SBA appraisal comes in low?
Short answer
On a 7(a) loan, an appraisal at 90% or more of the estimate lets the lender close with a written explanation. Below 90%, the lender needs SBA's permission, unless it holds Preferred Lender Program (PLP) authority and documents its justification. Source: SOP 50 10 8.1, App. 19, Para. A.
It depends on how far below the estimate it lands. Appendix 19, Para. A, of SOP 50 10 8.1 applies when a 7(a) lender uses an estimate and gets the appraisal at closing.
7(a) thresholds
- At 90% or more of estimated value, the lender may close with a written explanation in the file.
- Below 90%, the lender may not close without SBA's prior written permission. It must explain the difference and recommend a remedy, such as additional equity or collateral.
- PLP lenders may close below 90% with a written justification. SBA may review it at guaranty purchase or during oversight.
If more collateralProperty a lender can take and sell if a loan is not repaid. is the remedy, the lender must identify its fair market and liquidation values.
504 thresholds
Below 90% of estimated value, the debenture must be reduced, or the Certified Development Company (CDC) must secure more collateral or borrower investment. If neither is available, SBA can still approve when strong, consistent cash flow supports the debt (Section C, Ch. 1, Para. E.2.b).
On a non-arm's length deal or a change of ownership, the property must appraise for 100% of the estimated value.
Construction shortfalls
Suppose a completed building falls short of its estimated value and the lender lacks a conformance statement. If the loan financed construction, the lender must notify SBA's Commercial Loan Servicing Center and work out a remedy.
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