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.
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:
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.
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Historical earnings are a critical part of underwriting a leveraged business acquisition.
Those earnings ultimately need to support:
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 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.
This is where the new requirement becomes especially important.
A buyer may already have:
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.
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.
Related Topics |
Related Industries |
| Quality of Earnings for SBA loan | SOP 50 10 8.1, |
| SBA SOP 50 10 8.1 | SBA 7(a) acquisition |
| SBA 7(a) Quality of Earnings | SBA QoE requirement |
If you’d like to dive deeper into the new SBA rules:
“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.
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:
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.
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Contributors
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