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SBA 504 Q&A: RE Appraisal Requirements

Apr 2022

When is a real estate appraisal required to be submitted to the Small Business Administration (SBA) with a 504 loan application?

Typically, an appraisal is submitted to the SBA for approval subsequent to the 504 loan being approved; however, there are situations that require an appraisal to be submitted to the SBA at the time of application, including:

• Equity in land owned for 2 years or more is being contributed as part of the borrower’s equity injection. Note: in this instance, the appraisal will give the value to the land vs. the purchase price.
• The real estate is the third party lender’s Other Real Estate Owned (OREO).
• The project is not an arms-length transaction. (a) Buyer and seller have a professional or personal relationship. (b) Purchasing from family members, business partners, etc.
• The seller of the property is carrying back a loan that is part of the borrower’s contribution.

Additionally, the SBA may require an appraisal during application if they determine it is necessary to evaluate creditworthiness.

Is the appraisal review requirement ever waived by the SBA?

• A real estate appraisal may not be required under the following circumstances:
• An equipment only loan, as there is no real estate involved in the transaction; however, if loan proceeds will be used to purchase used equipment, an equipment appraisal will be required.

The SBA may waive the requirement for their review of the appraisal if the estimated value of the project property is less than $500,000. (a) The SBA review requirement cannot be waived. (i) For any of the 4 examples listed above of an appraisal required at application. (ii) For refinance with or without expansion loans.

It should be noted that if an appraisal is not required due to a project property with an estimated value of less than $500,000, the Certified Development Company (Florida First Capital/First Capital Finance) still must obtain an appropriate evaluation of the project property being acquired with the loan proceeds that is consistent with prudent lending practices.

Per SOP 50 10 6, in these cases the evaluations are not required to be performed in accordance with USPAP or by a state licensed or certified appraiser, but should be consistent with the Interagency Appraisal and Evaluation Guidelines and the Interagency Advisory on the Use of Evaluations in Real Estate-Related Financial Transactions, issued by federal banking regulators.

For more information about SBA 504 loans in Alabama, Florida or Georgia, contact a Florida First Capital Loan Officer or email us at info@ffcfc.com. Phone: 850.681.3601 or toll-free at 888.320.5504.