Does the SBA Require a Quality of Earnings Report? (2026)

Last updated September 2026.

The short answer

Yes, for bigger deals. Starting October 1, 2026, SBA SOP 50 10 8.1 requires the lender to get an independent quality of earnings (QoE) report on 7(a) change-of-ownership loans for initial acquisitions and business expansions with a purchase price of $3 million or more. The lender engages the firm, not the buyer or seller. Owner buyouts and ESOPs are exempt, and deals under $3 million have no mandate, though a lender can still ask for one.

What exactly changed on October 1, 2026?

The change is that a QoE moved from optional to required on larger SBA acquisition loans. The SBA issued SOP 50 10 8.1 on August 14, 2026, and published a technical update on September 25, 2026. Both take effect October 1, 2026, and apply to 7(a) and 504 applications the SBA receives from that date. Applications submitted through September 30 stay under the prior SOP 50 10 8.

Before this rule, lenders often underwrote acquisition loans from tax returns, financial statements, and a valuation, with a QoE as a nice extra when the budget allowed it. Now, on deals over the line, the QoE is a gating item that sets the earnings number the whole loan is built on.

Which SBA deals need a QoE, and which do not?

A QoE is required only when two tests are both met: the deal falls in one of two change-of-ownership categories, and the purchase price is $3 million or more. The SOP sorts change-of-ownership deals into four categories in Appendix 15, and the purchase price is the amount in the purchase agreement, less any owner-occupied real estate carried at appraised value.

The SBA's logic for the exemptions is continuity. In an owner buyout or ESOP, someone who already runs the business stays after closing. In an initial acquisition, the person who built the business is usually leaving, and the new debt has no track record behind it.

Two details trip people up. First, the $3 million test uses purchase price, so a $3.4 million deal that includes $600,000 of owner-occupied real estate at appraised value lands at $2.8 million and falls under the line. Second, "not required" is not "not requested." Lenders set their own credit policies, and many already asked for a QoE on smaller deals.

What does the SBA's QoE have to include?

The SBA's QoE has to rebuild the earnings number from source records and prove it with cash. Based on the SOP as summarized by the transaction advisory groups at EisnerAmper, Weaver, and Doeren Mayhew, the required scope includes:

1. Reconciliation of every financial source. Accountant-prepared statements, tax returns, internal financials, general ledger data, and IRS transcript data, tied into one normalized earnings figure.
2. Every add-back documented and tested. Non-recurring items, owner compensation above or below market, related-party transactions, deferred maintenance, and cash-versus-accrual differences, each evaluated against historical reported net income to reach a pro forma adjusted EBITDA.
3. A cash proof. Reported receipts and disbursements reconciled to bank statements for the trailing 12 months and the two most recent fiscal years.
4. Revenue quality. Customer concentration, contract continuity, and whether margins are likely to hold after the sale.
5. Use in the credit decision. The lender must use the QoE's adjusted earnings in its debt service coverage calculation and keep the report in the loan file.

Under the Preferred Lender Program, the QoE and valuation can finish after the SBA loan number is issued, but both have to be formally engaged, with a signed engagement letter, by the time the number is issued.

Why can a QoE shrink the loan?

A QoE can shrink the loan because the SBA's remedy is written into the rule: if the QoE's earnings do not support the proposed structure, the loan gets smaller or the buyer adds equity. Minimum debt service coverage is 1.25 to 1 for initial acquisitions and 1.15 to 1 for business expansions.

Here is an illustrative example. It is not a benchmark, and real terms will differ.

In this example, the QoE removed $120,000 of add-backs the seller could not support: a "one-time" legal bill that showed up three years running, and a family member's salary treated as an add-back while that person still did real work. Coverage dropped below 1.25, and the supportable loan dropped by about $233,000.

That gives a working rule we call the $5 rule: at these illustrative terms, every $1 of add-back a QoE throws out removes about $5.18 of borrowing capacity. The exact multiplier moves with rate and term, but the direction never changes. Who closes the gap depends on the deal. It could be more buyer equity, a lower price, or a seller note, and the lender's requirements and the purchase agreement decide which. Ask your deal attorney and lender before you assume any of them.

Can the seller's own QoE count?

No. A QoE prepared by or for the seller does not satisfy the SBA requirement, including a sell-side report handed over by a broker. The September 25 technical update added one path: a QoE previously prepared for the buyer can be used if it comes with a reliance letter or a secondary review by another firm.

That does not make seller preparation pointless. It changes what the preparation is for. A seller cannot hand the lender a finished answer, but a seller can make sure the lender's QoE firm finds books that tie out on the first pass. The lender's QoE is still testing your numbers. The only question is whether the test goes smoothly.

What should a seller fix before a lender's QoE starts?

A seller should fix anything that makes the earnings number hard to prove, because every unproven dollar gets thrown out. The foundation work that matters most:

1. Close the books every month, on time. A QoE firm tests monthly trends. Books updated once a year for the tax return cannot show a trailing 12 months with any confidence.
2. Reconcile every bank and card account, every month. The cash proof ties reported revenue and expenses to the bank for three periods. Unreconciled accounts turn into open questions, and open questions slow the loan.
3. Build an add-back file with receipts. For each add-back, keep the invoice, the explanation, and why it will not recur. If it recurred, it is not an add-back.
4. Separate personal and related-party spending. Family payroll, a vehicle, rent paid to an entity you own: list each one, the amount, and what a market rate would be.
5. Know your cash-versus-accrual gap. If you keep cash-basis books, expect the QoE to adjust to accrual. Knowing that number ahead of time beats learning it from the lender.
6. Document customer concentration. If one customer is a large share of revenue, show the contract, the history, and the renewal terms.

Start at least 12 months before you plan to sell, because the QoE looks back two full fiscal years plus the trailing 12 months. Books fixed the month before a sale still carry messy history.

What should a buyer do differently now?

A buyer should build the QoE into the timeline and the budget from the letter of intent forward. The lender, not the buyer, engages the firm, so ask your lender early who they use and how long it takes. If you already paid for a QoE on the target, ask whether the lender will accept it with a reliance letter or secondary review under the September 25 update, rather than paying twice.

Diligence costs can be charged to the borrower, financed with loan proceeds, or counted toward the equity injection, according to EisnerAmper's summary of the SOP. How that shows up in your deal is a question for your lender.

Where Thryve fits

Thryve Accounting & Advisory in McKinney, Texas works with owner-led businesses from $1M to $50M in revenue on the part of this rule sellers control: books that hold up when someone independent tests them. For a business planning a sale, that means monthly close, account reconciliations, an add-back file with support, and a cash proof you have already run yourself. Our bookkeeping and monthly accounting work is the foundation, and a QuickBooks health check is a quick way to see where your books stand today.

One boundary matters here. The SBA requires the QoE firm to be independent and engaged by the lender. When Thryve does lender-side QoE work, it is only for companies we have no prior relationship with. If we already keep your books or prepare you for a sale, we are on your side of the table, and a different firm does the lender's QoE.

Thryve is not the right fit if you need tax advice on the sale. That belongs with your CPA, and we are happy to coordinate with them. For more on what a QoE tests, read how clean books win a quality of earnings review, and for the lender's view of the whole file, see why your buyer's loan is really a test of your books. If you are sorting out which report a deal needs, what each financial report asks of your books compares the four.

Start with a health check. Talk to us before the lender's QoE firm calls.

This article summarizes SBA SOP 50 10 8.1 as published on sba.gov and is not legal, tax, or lending advice. SBA rules change, so confirm the current version with your lender.

FAQ

Does the SBA quality of earnings rule apply to deals under $3 million?

No, the SBA's QoE requirement under SOP 50 10 8.1 applies only to initial acquisitions and business expansions with a purchase price of $3 million or more, measured after removing owner-occupied real estate at appraised value. Lenders can still require a QoE on smaller deals under their own credit policy, so ask your lender early, and confirm the current SOP version, since the SBA updated the rule once already before it took effect.

Can a seller's quality of earnings report satisfy the SBA requirement?

No, a QoE prepared by or for the seller does not satisfy the SBA requirement under SOP 50 10 8.1, even when a broker provides it. A report previously prepared for the buyer can count if it comes with a reliance letter or a secondary review by another firm. A seller-side report can still speed up the lender's work, but the lender decides what it will rely on, so confirm with the lender before anyone pays for a report.

Who pays for the SBA quality of earnings report?

Under SOP 50 10 8.1, diligence costs such as the QoE can be charged to the borrower, financed with loan proceeds, or counted toward the required equity injection, according to published summaries of the SOP. Who bears the cost in practice is negotiated between buyer and seller and depends on the lender's requirements and the purchase agreement, so treat it as a deal term to raise with your lender and deal attorney early.