Can A PPP Loan Help or Hurt My Company Valuation?

Posted on March 5, 2021 By

The COVID-19 pandemic has impacted businesses of all sizes, affecting the value of many of those businesses. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was created by the U.S. government to get businesses through the pandemic, and includes the Paycheck Protection Program (PPP), which is designed to give private businesses access to cash so that they can continue to pay employees and cover other expenses, such as health insurance, rent/mortgages, and utilities, over a 24-week period. The loans contain provisions for forgiveness as long as the company meets certain requirements and certifications. The PPP loan and its associated forgiveness have impacted how company valuations should be determined for the recipients.

For company valuation purposes, there needs to be an understanding of the reasons that the business got the PPP loan. The loan could indicate that the company has been under duress. Because of this, past financial statements may not accurately represent the future of the business.

Forgiveness and Income

If a PPP loan is forgiven, it will create income on the company’s financial statements. This could raise the company’s earnings for the year in a misrepresented way. Now, this doesn’t necessarily translate to a higher valuation, because value is found in the company’s ability to generate future income. This one-time increase in revenue due to the PPP loan forgiveness will need to be adjusted or removed to more accurately assess the business’s expected future cash flow. It really depends on whether the business truly needed the funds to keep operating during the pandemic, or if some of the loan was used to increase cash reserves or reduce debt. Excess cash can raise the value of equity, and so can paying off debt.

Many PPP loan recipients are unsure if their loan will be forgiven or not. This is why the valuation date is important. The business valuation is done based on what information is known at the time of valuation. This is different from the date that the valuation is finished. If the PPP loan’s forgiveness status is truly unknown, it may be best to treat the PPP funds as debt.

Fair Market Value Assessment

In the case of a PPP loan, the following need to be assessed in order to understand the need to make any adjustments to the company valuation.

  • The amount of the PPP loan
  • Status/timing of the application for forgiveness
  • Ownership’s support for expenses in the forgiveness application, demonstrating fulfillment of the loan’s forgiveness criteria
  • Any and all documents regarding support for forgiveness of the PPP loan

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Based on this information, it can be determined whether the PPP loan should be adjusted on the company’s balance sheet. If the business owner expects that it is highly probable that 100% of the PPP loan will be forgiven, it’s up to the business valuation professional to determine if all of the PPP loan should be removed from the balance sheet. In contrast, if the documentation shows that only part of the loan may be forgiven or there is no support for forgiveness, only a portion of the loan or none of the loan balance may be adjusted.

Furthermore, whether the impact of the PPP loan on the cash flow and income statements is generally nonrecurring should be considered. If the loan is ultimately forgiven, the income statement under generally accepted accounting principles will show a non-cash gain and must be adjusted when determining normalized levels of income.

Give Us a Call

The actual impact of a PPP loan on a company’s valuation will vary based on the circumstances of the business. Our experts at Benchmark International are here for you if you would like to discuss your specific circumstances and how your PPP loan may impacts your business’s value.

Schedule A Call

Americas: Sam Smoot at +1 (813) 898 2350 /

Europe: Michael Lawrie at +44 (0) 161 359 4400 /

Africa: Anthony McCardle at +27 21 300 2055 / 


Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $6B across various industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 12 offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.


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