Just In: New SBA 7(a) Quality of Earnings Rules Are Here

Beginning October 1, 2026, certain change-of-ownership transactions with a business purchase price of $3 million or more will require a Quality of Earnings.

Under SBA SOP 50 10 8.1, it is now required that folks using the program must obtain an independent quality of earnings (QoE) report for certain 7(a) initial acquisition and business.

What Changed?

Under SBA SOP 50 10 8.1, certain SBA 7(a) change-of-ownership transactions now require an independent Quality of Earnings analysis.

The requirement applies to covered:

• Initial Acquisitions
• Business Expansions
• Business purchase prices of $3,000,000 or more

One important distinction:

The $3 million threshold is based on the business purchase price, not simply the SBA loan amount.

This means a transaction can potentially trigger the Quality of Earnings requirement even if the SBA loan itself is less than $3 million.

Why Does the SBA Require a Quality of Earnings?

Historical earnings are a critical part of underwriting a leveraged business acquisition.

Those earnings ultimately need to support:

• Acquisition debt
• Operating expenses
• Working capital
• Capital expenditures
• Owner compensation
• Ongoing business needs

A business may report $1 million of adjusted earnings.

But if a portion of those earnings cannot be supported, is nonrecurring, or depends on aggressive adjustments, the economics of the transaction may change.

A Quality of Earnings analysis helps the lender better understand the normalized earnings supporting the acquisition.

The Bottom Line

The new SBA 7(a) Quality of Earnings requirement creates an additional financial due diligence step for certain larger business acquisitions.

For covered transactions with a business purchase price of $3 million or more, buyers and lenders should address the Quality of Earnings requirement early in the transaction process.

“Connect with the OAG SBA QOE team today to avoid closing delays ,” as Patrick O’Connell explained during the informational session held with banks entrepreneurs. 

What Does This Mean for Searchers and Entrepreneurs Under LOI?

This is where the new requirement becomes especially important.

A buyer may already have:

• Signed an LOI
• Entered exclusivity
• Started financial diligence
• Started legal diligence
• Applied for SBA financing
• Negotiated purchase agreement terms
• Established a targeted closing date

If the lender's Quality of Earnings requirement has not been incorporated into the transaction timeline, it can become an additional closing dependency.

A Quality of Earnings requires financial information from the seller, time to analyze the records, management questions, and lender review.

Waiting until the final stages of the transaction can create unnecessary delays.

For a buyer operating under a limited exclusivity period, those delays matter.

What Should Buyers Do Now?

If you are pursuing an SBA-financed acquisition with a business purchase price around or above $3 million:

1. Talk to your SBA lender early.

Confirm whether your transaction requires a Quality of Earnings report.

2. Understand the lender's provider requirements.

Do not assume every Quality of Earnings provider or previously completed report will automatically satisfy the lender.

3. Build the QoE into your diligence timeline.

Do not wait until the week before closing.

4. Prepare the seller.

Let the seller know early that detailed financial information may be required.

5. Understand the findings before closing.

The Quality of Earnings may affect both the financing and the economics of your acquisition.

Further Reading & Helpful Resources

If you’d like to dive deeper into the new SBA rules:

• Read The SBA white paper Issuance of SOP 50 10 8.1"
  

• Read more from the National Association of Government Guaranteed Lenders. 

Final Takeaway If you are under LOI for a $3 million+ SBA 7(a) acquisition, do not wait until the end of the deal to address the QoE. 

“Waiting can delay underwriting, delay closing, and create additional transaction risk..”

Planning for it early gives the buyer, seller, lender, and financial diligence team enough time to complete the analysis and address any issues before they threaten the closing timeline.

Meet with the OAG SBA 7(a) Quality of Earnings Team (Approved SBA QOE Partner)

O'Connell Advisory Group provides Quality of Earnings and financial due diligence services for lower-middle-market business acquisitions, including SBA 7(a) transactions.

Our team works with searchers, entrepreneurs, independent sponsors, investors, and SBA lenders to evaluate:

• Normalized earnings
• EBITDA adjustments
• Proof of cash
• Revenue quality
• Working capital
• Customer concentration
• Financial reporting
• Other transaction-specific financial diligence matters

Buying a $3 million+ business with SBA 7(a) financing?

Connect with the OAG Quality of Earnings team early in your diligence process to understand the requirements and avoid unnecessary delays to closing.