A New SBA Quality of Earnings Requirement: What Every Business Buyer Needs to Know Before October 2026

ARTICLE | September 28, 2026

If you are planning to buy a business using an SBA loan, there is an important change on the horizon that could affect your financing and timeline. Starting October 1, 2026, certain SBA-backed acquisition loans will require an independent quality of earnings (QoE) report as part of the lending process. Understanding what this means now, before you are in the middle of a deal, puts you in a far better position.

What Is the SBA Quality of Earnings Requirement?

Under updated guidance issued in SOP 50 10 8.1, any initial business acquisition or business expansion financed through a 7(a) loan with a purchase price of $3 million or more will require an independent QoE report in addition to the business valuation that lenders already require. The report must be commissioned by and prepared for the benefit of the lender. A report prepared by or for the buyer or seller will not satisfy the requirement, even if the underlying analysis is thorough.

Not every transaction is affected. Owner buyouts, ESOP conversions, and cooperative conversions are exempt from the requirement because the existing ownership group typically retains firsthand operational knowledge of the business. The $3 million threshold is based on the stated business purchase price, excluding owner-occupied real estate carried at appraised value.

What Does a Quality of Earnings Report Actually Do?

A QoE goes well beyond what a business valuation or tax transcript alone can tell you. While a valuation answers the question “What is this business worth?”, a QoE answers a different and equally important question: “Are the earnings behind that value real, recurring, and reliable?”

To answer that question, the report reconciles financial statements, tax returns, internal accounting records, and IRS transcript data into a single normalized earnings figure. Every adjustment, whether it reflects a one-time expense, owner compensation above or below market, a related-party transaction, or a shift in accounting methods, must be documented with a clear tie back to historical performance. The report also evaluates the quality of the revenue base, including customer concentration, contract continuity, and the likelihood that margins hold up after ownership changes hands.

One of the most important elements is a proof of cash analysis. This independently reconciles actual bank statement activity to internal financial statements and tax returns across the trailing twelve months and the two most recent fiscal years. It is a rigorous check on whether what was reported is consistent with what actually moved through the business.

Why This Matters for Your Deal

The earnings figure produced by the QoE is not just informational. Lenders are required to use it in the debt service coverage calculation that determines whether the proposed loan is viable. For initial acquisitions, the SBA requires a minimum debt service coverage ratio of 1.25 to 1. If the QoE reveals that normalized earnings are lower than reported, the loan amount may need to be reduced, or the buyer may need to bring more equity to the table. Either outcome can materially affect how a deal comes together.

Timing is also a factor. Under the Preferred Lender Program, the QoE engagement can be completed after the SBA loan number is issued, but a provider must be formally engaged with a signed letter on record at the moment that number comes through. Waiting until late in the process to find a qualified provider is no longer an option.

What You Can Do to Prepare

At Insero Advisors, our financial due diligence team provides insight-driven QoE analysis that helps buyers and lenders evaluate the true financial picture of a business before a transaction moves forward. We look beyond reported earnings to assess trends, validate adjustments, and identify risks that may not be visible in financial statements alone. With more than 50 years of experience helping growth-focused businesses navigate complex financial decisions, we bring the depth and objectivity your transaction requires.

If you are considering a business acquisition that may fall under the new SBA quality of earnings requirement, we encourage you to start the QofE conversation with your lender early. Contact the Insero Advisors team to discuss how we can support your financial due diligence process and help you move through your transaction with greater clarity and confidence.