The Small Business Administration’s New Quality of Earnings Requirement: What M&A Participants Need to Know

What Changed Under the New SBA Rule

On August 14, 2026, the Small Business Administration (SBA) issued SOP 50 10 8.1, which includes several revisions that will become effective October 1, 2026. Among the most notable changes is a new requirement for lenders to obtain a Quality of Earnings (QoE) report for certain changes in ownership transactions involving initial business acquisitions and business expansions with purchase prices of $3 million or more.

While the requirement is directed at SBA lenders, its impact will extend to acquisition entrepreneurs, search fund investors, independent sponsors, private equity buyers, business brokers, business owners and merger and acquisition (M&A) advisors participating in SBA-financed acquisitions. As a result, these parties should begin preparing now for how this change may affect deal timelines, underwriting and valuations.

Understanding SBA’s SOP 50 10 and the New QoE Requirement

The SBA’s SOP 50 10 is guidance that instructs banks and other SBA lenders on how to evaluate, structure, document and approve SBA-backed acquisition loans.

Under the new framework, an independent financial professional must reconcile financial reporting sources, normalize earnings and assess whether reported revenue and profitability are sustainable after closing. The objective is to provide lenders with an independent view of normalized cash flow and debt service capacity before approving an SBA acquisition loan.

Perhaps most importantly, lenders are expected to use the QoE-adjusted earnings figures in their debt service coverage calculations. In practical terms, aggressive add-backs or unsupported adjustments that may have previously been considered in an underwriting model will be more heavily scrutinized.

How the QoE Requirement Supports Underwriting

From a lender’s perspective, there are clear benefits. An independently prepared QoE provides a stronger foundation for underwriting, reduces reliance on borrower-prepared information and should lead to better-informed credit decisions. For lenders, the requirement may also create greater consistency in the underwriting of SBA acquisition loans and improve support for credit decisions during SBA reviews. The reported requirement for a cash proof, reconciliation to filed tax returns, review of related-party transactions and evaluation of quality of earnings risks gives lenders a more comprehensive view of a business’ financial picture. For lenders ultimately responsible for credit risk and SBA compliance, these procedures should provide a more supportable basis for underwriting decisions and SBA review.

Potential Friction for Deal Participants

The new requirement is not without debate. Some industry participants may question whether a fixed $3 million purchase price threshold is the most effective trigger for enhanced diligence. Others have noted that the rule appears to be driven by transaction size rather than underlying risk factors such as leverage, accounting complexity or the quality of the seller’s financial reporting. There are also concerns about increased transaction costs, extended timelines and higher costs when transactions do not close.

Why Buyers Should Look Beyond Compliance

For buyers, the requirement should be viewed as more than a compliance hurdle. A well-executed QoE often uncovers issues that would otherwise go unnoticed during due diligence, including customer concentration concerns, revenue recognition inconsistencies, unusual related-party activity, working capital anomalies or unsubstantiated add-backs. Identifying these matters before closing can help investors avoid overpaying for a business or inheriting operational and financial challenges that surface only after the acquisition is complete. Some buyers are expected to find the cost of a QoE to be small compared to the potential cost of discovering significant earnings quality issues after capital has been deployed.

Potential Expansion of Sell-Side QoE Reports

SOP 50 10 8.1 currently states that the QoE “must be conducted for the benefit of the lender.” Traditionally, the QoE is conducted on behalf of the buyer. Market practice is expected to evolve over time, and this requirement may influence how businesses are prepared for market.

As buyers and lenders increasingly expect a lender-ready QoE, sell-side QoE reports could become more common in SBA-financed transactions. Sellers and business brokers may find that proactively commissioning a thorough sell-side QoE helps alleviate concerns with this new requirement by reducing surprises during diligence, supporting valuation expectations, accelerating lender underwriting and broadening the pool of potential buyers.

A More Mature SBA Acquisition Market

The SBA’s new QoE requirement reflects the continued maturation of the lower-middle-market transaction environment. While there will be an adjustment period as lenders, buyers, brokers and QoE providers adapt to the new standards, the broader objective is to improve transparency, strengthen underwriting and ensure that acquisition financing is based on sustainable earnings assumptions.

For investors considering acquisitions in the SBA market, independent financial due diligence is increasingly becoming a core component of deal execution. Those who embrace the process early will likely be better positioned to secure financing, negotiate confidently and close transactions with fewer surprises.

How Weaver Can Help

In an environment where QoE procedures may become a standard component of acquisition financing, selecting an advisor that understands both the technical and transactional aspects of the process can help reduce delays and keep deals moving forward.

For acquisition entrepreneurs, independent sponsors, search funds, family offices and private equity investors, a QoE serves as the pillar of financial due diligence. Buyers, sellers and lenders that prepare early for the new requirement will be better positioned to manage timelines, support underwriting and reduce transaction surprises.

Weaver’s transaction advisory services team brings decades of experience providing QoE reports, financial due diligence and transaction advisory services to lower-middle-market businesses, private equity firms, independent sponsors, search funds and acquisition entrepreneurs. Contact us. Let’s start a conversation.

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