The Lender obtains a business valuation (real estate valued separately by appraisal) requested by and prepared for it, never the Applicant's or seller's, from an independent Qualified Source accredited as ASA, CBA, ABV, CVA or BCA and not involved in loan production or approval, with a scope identifying asset or stock purchase and what is included, and a signed conclusion of value and qualifications; it may value the business itself only where the Business Purchase Price is at or below the SOP threshold and the parties are not closely related. Special purpose property valuations allocate values among land, building, equipment and intangibles, by a certified general appraiser with the required recent going concern experience under USPAP. Any excess of price over value is covered by equity. It verifies the financial information the valuer relied on against the seller's IRS transcripts. For Initial Acquisitions and Business Expansions at or above the SOP's price threshold it also obtains a Quality of Earnings report by an independent financial professional for the Lender's benefit (never by or for the seller; a buyer-commissioned report only with a reliance letter or a review by the Lender's vendor), reconciling accountant statements, returns, internal statements and transcripts into normalized earnings, with a cash proof over the trailing 12 months and last two fiscal years and a documented review of add-backs and revenue sustainability, and uses its earnings for debt service coverage, reducing the loan if needed. Under PLP both must be engaged before the loan number and completed, with the memorandum updated, before closing.
The graph holds this control, the 0 it maps to, and the evidence behind each claim, over MCP and REST.