Glossary · Reading the business
Replacement cost approach
In short
A business valuation method that estimates the cost to replace a business's assets with new ones of similar utility. It's less common for small businesses unless they're asset-heavy, as it often undervalues goodwill.
What it means in a deal
This approach is rarely the primary method for valuing an operating small business in a 7(a) deal, as it typically doesn't account for the business's ongoing cash flow or intangible value. However, it might be used to value specific assets like equipment or real estate as part of a broader appraisal. Focus on cash flow-based valuations for the business itself.
Related terms
Common questions about Replacement cost approach
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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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