Beginning October 1, 2026, the Small Business Administration will require an independent Quality of Earnings report on any 7(a) loan that finances a business acquisition of $3 million or more. The mandate arrives in SOP 50 10 8.1, the agency's revised lending manual, and applies to every application the SBA receives on or after that date. A technical update published September 25 kept the requirement intact and opened a second way to satisfy it: a report the buyer commissions on their own can now enter the file once one of the lender's approved vendors has reviewed it.
Until now, whether a QoE was commissioned on an SBA-financed acquisition was left to the lender, and on smaller deals the answer was usually no. The new manual makes the report a condition of the loan for larger acquisitions and directs lenders to underwrite to its findings rather than to the figures the seller presents.
What the rule says
The requirement covers two of the four change-of-ownership categories the SBA now recognizes: initial acquisitions, in which a buyer with no existing stake purchases the business, and business expansions, in which an operating company acquires another. Owner buyouts are exempt, as are ESOP and cooperative conversions, on the reasoning that the people running the business do not change.
The $3 million threshold is measured on the purchase price stated in the purchase agreement, before the buyer's equity injection and before any seller note. Owner-occupied real estate carried at appraised value comes out of the calculation, so a $3.4 million deal that includes $600,000 of real estate falls below the line.
Deals under $3 million are outside the mandate, though lenders remain free to require a QoE on any loan. Many already do on acquisitions above roughly $1.5 million, and the new manual gives them a template for what the report should contain.
The independence test
The provision most likely to catch buyers off guard concerns who prepares the report. The SOP requires an independent, experienced financial professional engaged for the lender's benefit. A report prepared by or for the seller does not qualify, which excludes the sell-side QoE a broker or investment banker commissions to support an offering memorandum, however thorough that work may be.
The buyer's own report is treated differently. The September 25 update acknowledges that some buyers will commission a QoE before they approach a lender, and it permits the lender to have one of its approved vendors review that report instead of ordering a second one. The vendor's findings go in the loan file alongside the original. The manual is explicit about the limit: a lender may not rely on a report prepared for another party without that review. So a buyer who wants their own report to carry through underwriting needs it built to the full scope described below, and needs to know early which firms sit on the lender's vendor list.
Under the Preferred Lender Program, the lender must have a vendor retained and an engagement letter in place by the time the SBA loan number is issued, with the report itself allowed to finish before closing. Applications that go through the SBA's loan processing center need the report at submission. In practice, the conversation about the QoE belongs before the letter of intent, while there is still time to agree on who will be engaged and how long the work will take.
What the report must cover
The SOP sets a minimum scope. The report must reconcile the accountant-prepared financial statements, internal statements, general ledger, business tax returns, and IRS transcripts to one another, with differences explained. It must prove cash by reconciling receipts and disbursements to bank statements, the income statement, and the tax return for the trailing twelve months and each of the two most recent fiscal years, or for every year in operation if the business is younger than two years. Every add-back, from owner compensation to one-time expenses, related-party transactions, and deferred maintenance, must be documented and tied back to historical net income. And it must assess revenue quality, including customer concentration, contract terms, and the likelihood that revenue survives a change in ownership. Readers familiar with our guide to EBITDA add-backs will recognize the add-back work; the SOP now makes it a formal requirement.
Lenders then run their debt service coverage test on the normalized earnings figure the report produces. When that figure comes in below the seller's recast, as it frequently does, the loan amount shrinks or the required equity injection grows. A buyer who learns this in the third week of diligence can renegotiate. One who learns it the week before closing usually cannot.
How deals will change
For buyers, the QoE becomes a line in the budget and a fixed block in the timeline, typically two to four weeks from the day the data arrives. The document request that feeds it, covering monthly financials, bank statements, tax returns, and customer-level revenue, is the same request a careful buyer would make anyway, and an early read on normalized EBITDA guards against paying for add-backs that will not survive the lender's review.
Sellers with clean books will move through underwriting faster. Statements that tie to tax returns and bank activity, with add-backs already documented, give the lender's provider less to chase. A sell-side QoE commissioned before going to market cannot stand in for the lender's report, but it will show a seller what that report is going to find while there is still time to address it.
Lenders face a supply question. Traditional diligence firms price QoE work at $20,000 and up for lower middle market deals, a difficult number on a $3.5 million acquisition. Banks that expect to originate change-of-ownership loans this fall will want a bench of independent providers who can deliver on SBA timelines at a cost the deal can absorb.
Beyond the QoE
The QoE requirement is the most visible change in SOP 50 10 8.1. Several others also affect acquisitions. The seller consulting period a lender may allow after closing extends from 12 months to 24. Equity injection, debt service, and valuation standards now vary by transaction category. The September 25 update also restored 7(a) Small and SBA Express loans for changes of ownership, subject to the same due diligence standards, and confirmed that a working capital true-up owed under the purchase agreement may stay with the borrower rather than pay down the acquisition loan. A performance-based rebate to the buyer is treated differently and has to reduce loan principal, and a seller earnout remains prohibited. The full text is available from the SBA, and because lenders may layer their own requirements on top of the agency's, buyers should confirm specifics with their bank before engaging anyone.
Buying at $3 million or more, or underwriting the loan? Provafi builds the SBA-Ready Quality of Earnings to the Appendix 15 scope on a fixed fee, whether the buyer commissions it ahead of financing or the lender engages Provafi directly as its vendor. Lenders can also engage Provafi to review a buyer's report from another firm. Every engagement is reviewed by a CFA charterholder and a CPA. See scope and pricing, or book an intro call.