New SBA Requirements Make Quality of Earnings Reports a Critical Part of Business Acquisitions

Effective October 1, 2026, the U.S. Small Business Administration’s updated SOP 50 10 8.1 introduces a significant new requirement for many SBA-financed business acquisitions. For certain transactions with purchase prices of $3 million or more, lenders must now obtain a Quality of Earnings (QoE) report in addition to the traditional business valuation.

This change reflects a growing emphasis on financial due diligence and transaction risk management, helping lenders gain a clearer understanding of a company’s true earning power before approving financing.

What Is Changing?

Under SBA SOP 50 10 8.1, Business Expansion and Initial Acquisition transactions with a purchase price of $3 million or greater now require a Quality of Earnings analysis. The $3 million threshold is determined before the application of buyer equity, seller financing, or other funding sources. Certain transaction types, including owner buyouts and ESOP/cooperative transactions, are excluded from the requirement.

For business buyers, sellers, lenders, and advisors, this means QoE reports will become a standard component of many lower middle-market SBA-financed transactions.

What Is a Quality of Earnings Report?

A Quality of Earnings report is a financial due diligence analysis that evaluates the reliability, sustainability, and accuracy of a company’s earnings. Unlike a business valuation, which estimates what a business is worth, a QoE focuses on understanding how earnings were generated and whether those earnings are likely to continue in the future.

The objective is to provide lenders and transaction stakeholders with confidence that reported financial results accurately reflect the ongoing operations of the business.

A QoE often helps answer questions such as:

• Are reported revenues and expenses supported by bank deposits and tax filings?
• Were there unusual or nonrecurring items that inflated earnings?
• Is owner compensation above or below market rates?
• Are there related-party transactions affecting profitability?
• Are there margin fluctuations, customer concentrations, or other potential business risks?

What Does the SBA Require in a QoE?

The new SOP outlines several specific requirements for the analysis.

The QoE must be performed by an independent, experienced financial professional and must be conducted for the benefit of the lender. It cannot be prepared by or for the borrower or seller.

Among other procedures, the analysis must:

• Reconcile accountant-prepared financial statements, tax returns, internal financial records, and IRS transcript data.
• Include a detailed Cash Proof analysis that reconciles bank activity to reported revenue and expense
• Identify and document all earnings adjustments and add-backs.
• Calculate a normalized earnings figure that reflects recurring business operations.
• Evaluate revenue sustainability, including customer concentration risks, contract continuity, and the likelihood that revenue and margins will continue after the transaction.

Additionally, lenders are required to use the earnings determined through the QoE when calculating debt service coverage and must maintain the report in the credit file.

Why This Matters

Historically, SBA transactions have often relied on tax returns, internally prepared financial statements, and business valuations to support underwriting decisions. The new requirement introduces a deeper level of financial scrutiny for larger transactions.

For buyers, a QoE can uncover issues before closing and provide greater confidence in the business being acquired. For lenders, it creates a more consistent framework for evaluating cash flow and repayment capacity. For sellers, a well-prepared QoE can help support earnings claims and facilitate a smoother transaction process.

As lenders begin implementing the new requirement, businesses entering the acquisition market should expect QoE reports to become a standard part of the due diligence process for many SBA-backed transactions.

How GreerWalker Can Help

GreerWalker provides Quality of Earnings analyses designed to help buyers, lenders, and transaction stakeholders evaluate the true earning power of a business. Our transaction advisory professionals have extensive experience performing financial due diligence across a wide range of industries, helping clients identify risks, normalize earnings, and gain confidence in acquisition opportunities.

With the SBA’s new requirements approaching, businesses pursuing SBA-financed acquisitions should consider incorporating QoE planning early in the transaction process to avoid delays and support efficient underwriting.

To learn more about GreerWalker’s Quality of Earnings services and how the new SBA requirements may affect your transaction, contact our Transaction Advisory team.