Glossary · Reading the business
Purchase price allocation(PPA)
In short
This is how the total purchase price of a business is legally assigned to its various assets (e.g., equipment, inventory, goodwill) for tax purposes. It impacts future depreciation and tax liabilities for you.
What it means in a deal
Your attorney and accountant will help you negotiate and structure the PPA with the seller. This allocation determines how much you can depreciate over time, impacting your future tax deductions. Goodwill is often a large component in small business acquisitions, but other assets like equipment or inventory have different depreciation schedules. Get this right; it's significant.
Related terms
Common questions about Purchase price allocation
- What information is required to document the purchase price allocation for a business acquisition?
- How does the SBA ensure the purchase price allocation to goodwill is reasonable for an acquisition?
- How does a lender evaluate the reasonableness of the purchase price allocation for a 7(a) acquisition?
- What if the business valuation is insufficient to support the purchase price?
- What happens if my business valuation comes in lower than the purchase price?
- How is the purchase price determined for an SBA 7(a) partner buyout?
Defined by CapBench SBA Intelligence — plain-English definitions for business buyers, lenders, advisors, and AI agents, grounded in public SBA rules and records. Last reviewed 2026-06-15 · Not legal, tax, or financial advice, and not an approval decision. Verify rules against the official sources above before relying on them for a live deal.
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