The SBA's New $3 Million Quality of Earnings Rule: What 7(a) Lenders and Buyers Need to Know
Starting October 1, 2026, SBA 7(a) lenders must obtain an independent quality of earnings (QoE) report on business acquisitions and expansions with a purchase price of $3 million or more.
The requirement comes from SBA SOP 50 10 8.1, the updated lending rulebook for the 7(a) and 504 programs. For years, a QoE was a "nice to have" on SBA deals. Now it is a condition of the loan, and the QoE's earnings figure feeds directly into the lender's debt service coverage test. That makes the report one of the most important documents in an SBA acquisition file.
Here is what lenders, buyers, and sellers need to know.
Which deals need a QoE
The requirement applies to two of the four change-of-ownership categories in SOP 50 10 8.1, and only above a size threshold. A QoE is required when all three of these are true:
• The loan is an SBA 7(a) loan.
• The deal is an initial acquisition or a business expansion, two of the change-of-ownership categories now governed by the SOP's new Appendix 15.
• The business purchase price is $3 million or more, excluding owner-occupied real estate.
The other two categories, owner buyouts and ESOP or cooperative transactions, are not subject to the QoE requirement. Which rulebook applies depends on the date the SBA assigns the loan number: applications that received a loan number on or after October 1, 2026 fall under SOP 50 10 8.1.
The QoE does not replace the business valuation. Lenders still need an independent valuation, and the QoE is required in addition to it (BVWire).
Who can perform the QoE
The SOP requires an "independent, experienced financial professional" to perform the QoE for the benefit of the lender. Unlike business valuations, where the SBA names specific credentials, the QoE has no credential requirement.
Independence is the key test. The report may not be prepared by or for the borrower or the seller. In practice, that means:
• A buyer's own diligence report does not satisfy the requirement.
• A sell-side QoE passed along by a broker does not satisfy it either, even if the work is sound.
• The lender needs to engage, or be the beneficiary of, a QoE from an independent firm.
For lenders, this creates a new vendor relationship to manage. Choosing a provider with audit-level rigor matters, because the QoE's numbers flow straight into the credit decision.
What an SBA QoE has to examine
An SBA QoE goes well beyond a quick adjusted EBITDA calculation. Under the new SOP, the report must:
• Reconcile the numbers. Tie the financial statements, tax returns, internal financial information, and IRS transcript data to normalized earnings.
• Document the adjustments. Support each adjustment, including nonrecurring expenses, owner compensation, related-party transactions, and deferred maintenance.
• Include a cash proof. Independently rebuild cash receipts and disbursements by reconciling bank activity to the income statement and tax returns, covering the trailing 12 months and the two prior fiscal years.
The cash proof is where many small-business financials struggle. Revenue that does not trace to bank deposits, or add-backs without support, can lower the earnings a lender is allowed to use.
The stakes are real: the lender must use the QoE's earnings figure in its debt service coverage calculation. If the QoE supports lower earnings than the seller presented, the deal may no longer meet the SBA's minimum coverage ratio.
When the QoE must be engaged
Under the Preferred Lender Program, the QoE can be finished after the SBA loan number is issued. But it must be formally engaged, with a signed engagement letter and a provider on record, when that loan number comes through (BPM).
That changes the deal calendar. Lenders can no longer wait until close to closing to find a QoE provider. The practical move is to line up a provider early, ideally before a qualifying deal reaches the loan number stage, so the engagement letter is ready to sign.
What this means for lenders, buyers, and sellers
Lenders. Update underwriting checklists, credit memo templates, and closing timelines for the new requirement. Build a short list of independent QoE providers now. Because the QoE earnings figure drives the coverage test, the report's quality directly affects which deals get approved. Minimum coverage is 1.25 to 1 for initial acquisitions and 1.15 to 1 for business expansions. If the QoE does not support the proposed loan, the lender's options are to reduce the loan or require more equity from the buyer.
Buyers. Expect the QoE in your deal budget and timeline for any acquisition of $3 million or more. Ask your lender early who it uses and how long the work takes. A business whose earnings do not hold up under a cash proof may support a smaller loan than you planned.
Sellers. Clean books are now worth more. Revenue that ties to bank deposits, documented add-backs, and reconciled tax returns make a QoE faster and reduce the risk of a lower earnings figure late in the deal. A sell-side QoE cannot replace the lender's report, but it can help you find and fix problems before a buyer's lender does.
How EC Barrett can help
EC Barrett is an Atlanta-based, PCAOB-registered CPA firm. We bring audit-level rigor to quality of earnings work: reconciling financials to tax returns and bank activity is what auditors do every day.
We work with SBA lenders and their borrowers on:
• Independent QoE reports that meet the SOP 50 10 8.1 requirements, including the cash proof
• Quick engagement turnaround, so a signed letter is in place when the loan number is issued
• Pre-sale financial cleanup for sellers who want their numbers to hold up under review
Before accepting any QoE engagement, we confirm our independence from the borrower and the seller.
If you are an SBA lender building your provider list, or a buyer or seller with a deal of $3 million or more in the pipeline, contact us to discuss scope and timing.
This article is for general information only and is not legal advice. Lenders should refer to the full text of SBA SOP 50 10 8.1 for complete requirements.