New SBA QoE Requirement for 7(a) LoansWhat Lenders and Business Buyers Need to Know About SOP 50 10 8.1 changes going into effect October 1, 2026

The new SBA QoE requirement for 7(a) loans indicates that qualifying Initial Acquisition and Business Expansion transactions with a Business Purchase Price of $3 million or more must undergo a Quality of Earnings report. This will no longer simply be an optional layer of financial due diligence, but an active part of the SBA lending process moving forward.

For SBA lenders, business buyers, sellers, and their advisors, now is the time to understand the new requirements and how they could affect upcoming transactions. Here’s what you need to know about the new SBA Quality of Earnings requirement.

What Is Changing Under SBA SOP 50 10 8.1?

SOP 50 10 contains the SBA’s loan origination policies and procedures for its 7(a) and 504 loan programs. The SBA published Version 8.1 in August 2026, with the new procedures taking effect October 1, 2026.

One of the most significant changes involves larger change-of-ownership transactions financed through the 7(a) program.

Under Appendix 15, lenders must obtain an independent Quality of Earnings report for qualifying Initial Acquisition and Business Expansion transactions with a Business Purchase Price of $3 million or more.

Importantly, the $3 million threshold is based on the Business Purchase Price, rather than the total project cost or SBA loan amount, and owner-occupied real estate is excluded when determining whether the threshold has been met. The threshold is determined before the application of buyer equity, seller debt, or other financing sources.

The requirement generally does not apply to Owner Buyouts or ESOP/Cooperative transactions.

SBA QoE Report Requirements at a Glance

What Is a Quality of Earnings Report (QoE Report)?

Now that a QoE is required for certain SBA transactions, what exactly is a Quality of Earnings report?

A Quality of Earnings (QoE) report is a financial due diligence analysis designed to evaluate the accuracy, sustainability, and composition of a company’s reported earnings. A central part of that process is determining the company’s normalized earnings, often through an analysis of adjusted or normalized EBITDA, to better understand the level of recurring earnings the business can reasonably support.

A company may report strong EBITDA, but that figure could include one-time revenue, nonrecurring expenses, above- or below-market owner compensation, related-party transactions, or other items that may not reflect the company’s normal operations.

A QoE examines these items and makes appropriate EBITDA adjustments or normalizations to arrive at a more representative earnings figure. These adjustments can include add-backs, which increase EBITDA by removing legitimate nonrecurring or discretionary expenses, as well as downward adjustments for items such as nonrecurring revenue or understated expenses.

The resulting normalized EBITDA provides buyers and lenders with a clearer picture of the company’s sustainable operating earnings. QoE analyses also commonly examine factors such as revenue trends, margins, customer concentration, working capital, and cash conversion to identify risks that may not be apparent from reported EBITDA alone.

Note that business valuation and Quality of Earnings report are not interchangeable- under the new SBA requirements, qualifying transactions require both.

What Does an SBA Quality of Earnings Report Include?

Unlike a typical QoE engagement where the exact scope may vary, SOP 50 10 8.1 establishes specific procedures that must be addressed for SBA-required Quality of Earnings reports.

Under Appendix 15, the QoE must:

1. Determine normalized, adjusted earnings.

The analysis must reconcile the business’s accountant-prepared financial statements, tax returns, internal financial statements, and IRS transcript data to produce a normalized, adjusted earnings figure that reflects recurring, arm’s-length operations.

2. Include a Cash Proof.

The QoE must include a Cash Proof that independently reconstructs the business’s cash receipts and disbursements by reconciling bank statement data to the income statement and tax return for each period under review. The Cash Proof is designed to identify discrepancies in reported income and undisclosed expenses and must cover the trailing 12 months and the last two fiscal years.

3. Analyze add-backs, adjustments, and revenue sustainability.

The report must identify and document adjustments to seller-reported earnings, including nonrecurring revenue or expenses, above- or below-market owner compensation, related-party transactions, deferred maintenance, and differences between cash- and accrual-basis accounting. It must also assess factors affecting the quality and sustainability of revenue, including customer concentration, contract continuity, and whether existing revenue and margins are likely to continue after the sale.

4. Establish earnings used for Debt Service Coverage.

The lender must use the earnings determined through the QoE when calculating Debt Service Coverage (DSC) and retain the QoE report in the credit file

Who Must Perform the Required SBA Quality of Earnings Report?

The independence of the Quality of Earnings provider is an important component of the new requirement.

Under SOP 50 10 8.1, the QoE must be performed by an independent, experienced financial professional and conducted for the benefit of the SBA lender. The SOP states that the required report may not be prepared by or for the borrower or seller.

Buyers who have already commissioned a QoE should therefore discuss it with their lender rather than assuming it satisfies the new SBA requirement. During its August 26, 2026 Appendix 15 lender training, SBA indicated that an existing independent buyer-commissioned QoE may still be considered as part of the lender’s diligence if it is reviewed by one of the lender’s approved vendors and incorporated into that provider’s report. This clarification is not currently stated in the written SOP, so buyers should confirm requirements directly with their lender.

For SBA lenders, this means establishing procedures for identifying when a QoE is required and determining how qualified, independent QoE providers will be selected, vetted, and engaged. Lenders should move quickly to identify reliable QoE providers with the experience and capacity to perform the required analysis, including cash proof.

How Could the New QoE Requirement Affect SBA-Financed Acquisitions?

For qualifying transactions, the Quality of Earnings report may become a significant component of both underwriting and the overall acquisition timeline.

Perhaps the most consequential part of the new requirement is that the QoE doesn’t simply become another document in the loan file. The lender must use the earnings determined through the QoE when calculating Debt Service Coverage (DSC). If that Debt Service Coverage does not support the business valuation and proposed debt structure, the loan amount must be reduced accordingly.

For example, if a seller reports $1 million in adjusted earnings but the independent QoE determines that only $800,000 represents supportable normalized earnings, the lender must use the QoE earnings figure in its Debt Service Coverage analysis.

In other words, the findings of the QoE can directly affect whether the transaction supports the proposed debt. The requirement therefore provides lenders with an additional level of financial due diligence by independently testing the earnings being used to support acquisition debt.

At the same time, it adds another third-party diligence process that buyers, sellers, and lenders will need to account for in their timeline and as a part of the cost of performing the transaction.

Waiting until late in underwriting to begin the QoE could potentially delay a transaction, particularly if the analysis identifies missing financial information, unsupported adjustments, discrepancies between tax returns and internal financial statements, or cash activity that requires additional reconciliation.

For lenders, identifying a qualified QoE provider early and understanding the provider’s expected turnaround time can help prevent the new diligence requirement from becoming a bottleneck in the transaction timeline.

What Should SBA Lenders Do Before October 1, 2026?

With SOP 50 10 8.1 taking effect October 1, lenders that finance business acquisitions should begin preparing for the new requirement now.

Before October 1, SBA lenders should consider:

• Reviewing existing change-of-ownership procedures;
• Educating lending and underwriting teams on the $3 million threshold;
• Establishing a process for flagging transactions that require a QoE;
• Determining how independent QoE providers will be vetted and approved;
• Identifying experienced providers capable of performing the required Cash Proof; and
• Accounting for QoE completion when establishing transaction timelines.

Because the QoE and business valuation serve different purposes, lenders should ensure their procedures address each requirement independently rather than treating the QoE as a replacement for existing valuation requirements.

What Should Business Buyers and Sellers Know?

Although the lender is ultimately responsible for satisfying the SBA requirement, buyers and sellers can take steps to prepare for the additional financial due diligence.

For buyers, one of the most important steps is simply determining early whether the transaction will cross the $3 million Business Purchase Price threshold. If it does, the required QoE should be discussed with the SBA lender early in the financing process.

Sellers can prepare by ensuring historical financial information is complete and readily available. Bank statements, tax returns, general ledgers, financial statements, revenue information, and documentation supporting unusual expenses or proposed adjustments may all become important during the analysis.

Clean, well-organized financial records will not guarantee a particular QoE result, but they can make the diligence process significantly more efficient.

Conclusion: Prepare for SBA QoE Requirements Before October 1

Quality of Earnings analyses have long been used by private equity firms, strategic buyers, and other sophisticated acquirers to better understand a company’s financial performance before completing a transaction.

SOP 50 10 8.1 now brings that additional level of financial due diligence into certain SBA-financed acquisitions as a formal lending requirement.

For lenders, that means developing a process for identifying qualifying transactions and engaging experienced, independent financial professionals.

For buyers and sellers, it means understanding that reported earnings may now face additional scrutiny before financing is approved, and preparing for that diligence earlier in the transaction process.

CKH Group Provides SBA Quality of Earnings Reports

CKH Group is an experienced Quality of Earnings provider for business acquisitions. With SOP 50 10 8.1 taking effect October 1, 2026, our Transaction Advisory team is prepared to work with SBA lenders and acquisition stakeholders to address the new Quality of Earnings and Cash Proof requirements.

CKH’s dedicated Quality of Earnings team allows us to move quickly and work within demanding transaction timelines. Because our QoE professionals focus specifically on transaction advisory work, engagements don’t compete for resources with tax deadlines, audit deadlines, or other seasonal CPA firm priorities.

If you’re an SBA lender looking to identify an independent Quality of Earnings provider ahead of October 1, or have an upcoming transaction that may fall under the new requirement, contact CKH Group’s Transaction Advisory team.

The information provided is for general educational and informational purposes only and does not constitute financial, legal, or tax advice. The tax rules and regulations are complex and subject to change. Before taking any form of action, you should consult your own tax, legal, and accounting advisors who understand your particular situation. CKH Group will not be held liable for any harm/errors/claims arising any tax, legal, or financial consequences you may incur. Whilst every effort has been taken to ensure the accuracy of the contents, we will not be held accountable for any changes that are beyond our control.