If you are buying, selling, or financing a business with an SBA 7(a) loan, the rules changed on October 1, 2026. The SBA's updated lending guidance, SOP 50 10 8.1, now requires an independent Quality of Earnings (QoE) report on larger change-of-ownership deals. For many transactions, that report will decide not just how fast a deal closes, but how much the buyer can borrow.
When Is a QoE Required?
The requirement applies to Initial Acquisition and Business Expansion loans when the business purchase price is $3 million or more. That figure is measured before equity injection, seller notes, or other financing, and it excludes owner-occupied real estate. In other words, a larger down payment will not move a deal under the line.
Owner buyouts, ESOPs, and cooperative conversions are exempt. The report must also be truly independent: it is obtained by the lender, so a QoE ordered by the buyer, seller, or broker does not satisfy the rule. It is required in addition to the business valuation, not in place of it.
Why It Matters
The QoE is no longer just a diligence exercise. Lenders must use the QoE's normalized earnings in the debt service coverage test, and the minimum coverage ratio for first-time buyers rises to 1.25x. Post-closing projections no longer count toward meeting it.
If the QoE-adjusted earnings do not support the proposed debt, the loan amount gets reduced. Aggressive add-backs, unsupported owner compensation adjustments, or cash that does not reconcile to the books can shrink a loan or stall a closing. One bright spot for buyers: the cost of the QoE can count toward the required equity injection.
What to Do Now
Sellers planning an exit at $3 million or more should expect a lender's third party to test every number in their financials. Clean books, documented add-backs, and bank statements that tie to reported revenue will make the difference between a smooth closing and a renegotiation.
Buyers should build the QoE into both the budget and the timeline from day one. A thorough QoE takes weeks, not days, and the earnings it produces will set the ceiling on what the deal can support.
How Wessel & Company Can Help
Wessel & Company works with lenders, buyers, and sellers on every side of an SBA transaction, including:
-
- Independent, lender-engaged QoE reports
- Cash proof and bank reconciliation
- Add-back and owner compensation analysis
- Sell-side readiness reviews
- Post-close accounting and integration
If an SBA-financed deal is on your horizon, call our office at (814) 536-7864 or visit wesselcpa.com to see how we can help you get to closing.
