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How Business Valuations Are Impacted by PPP Loans

November 30, 2020 4 Min Read Finance & Valuation
Brian J. Sharkey, CPA, CVA, CEPA
Brian J. Sharkey, CPA, CVA, CEPA Director-in-Charge, Transaction Advisory & Business Valuation

What’s Happening with Private Company Valuation Discounts?

With the potential to see a decrease in the gift and estate tax credit, there has been a surge in business valuation needs as privately-held business owners look to shift assets from their estate to their heirs. However, to complicate matters, many privately-held businesses received Paycheck Protection Program (PPP) funds, which contain provisions for forgiveness as long as the business meets certain requirements and certifications. The PPP loan and its associated forgiveness needs to be carefully examined to determine if it has an impact on an entity’s business valuation.

Here are three basic questions a business owner might have regarding PPP funds and private company stock valuations:

Will the “income” associated with the forgiveness of the PPP funds impact my business valuation?

If and when a PPP loan is forgiven, the forgiveness will create income on the company’s financial statements which could artificially increase the company’s true earnings for a particular year. This does not necessarily translate to increasing the business’s value, because value resides in a company’s ability to generate future value. As a result, a one-time increase in profits due to loan forgiveness should be adjusted or removed to better analyze the expected future cash flow stream of the business.

Can forgiveness of the PPP funds increase my valuation?

In short, yes it can. This will essentially be based on whether or not the business truly needed the funds to maintain operations during the peak COVID times, or if part of the funds were used to increase cash reserves or decrease debt. Generally speaking, excess cash can increase the value of equity, and likewise, paying down debt can also increase equity value.

For example, take a homeowner who has a mortgage. The value of the home is generally static (increasing slightly over time) but this homeowner comes into a large sum of money (let’s say they won the lottery).  If the homeowner were to take some of their winnings and pay off their mortgage, the equity they have in their home would instantly increase to be the same as the home’s market value.

What if I don’t know whether my loan will be forgiven?

With all the uncertainty and ever-changing landscape of the PPP loan program, it is understandably reasonable to be unsure whether a loan will be forgiven or not. A fundamental element of business valuations is that they should be prepared based on what is known or knowable at the valuation date. The valuation date is the “as of date” for determining the business’s value, and it is different than the date the valuation is finished. As a result, if there is clear uncertainty about the PPP loan’s forgiveness status, then it may be best to treat the PPP funds as debt.

The points noted above are general observations on how PPP funds could impact privately-held business valuations. The actual impact could vary based on the facts and circumstances for each particular business. Please contact us if you would like to discuss the specific circumstances of your PPP loan and how it impacts the business’s value. Please visit our COVID-19 Resources section, which has ample information on PPP loans and their forgiveness as well as more trenchant resources.

Brian J. Sharkey is a director with Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email



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Brian J. Sharkey, CPA, CVA, CEPA

Brian J. Sharkey, CPA, CVA, CEPA

Director-in-Charge, Transaction Advisory & Business Valuation

Manufacturing & Distribution Specialist, M&A/ Transaction Advisory Services Specialist, ESOPs Specialist, Business Valuation Specialist, Owner Operated Private Companies Specialist, Private Equity-Backed Companies Specialist

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