Summary: Under SBA SOP 50 10 8.1, certain 7(a) acquisition and expansion loans for businesses with a purchase price of $3 million or more now require an independent quality-of-earnings report, and valuation requirements have expanded for change-of-ownership deals. This article explains the changes and how lenders, buyers, and sellers can prepare.

Effective Oct. 1, 2026, the U.S. Small Business Administration (SBA) requires an independent quality-of-earnings report for certain 7(a) business acquisition and expansion loans with a business purchase price of $3 million or more. The requirement, part of SBA SOP 50 10 8.1, accompanies expanded independent business valuation requirements for SBA 7(a) change-of-ownership transactions.

What Changed Under SBA SOP 50 10 8.1?

For qualifying transactions, the updated guidance requires lenders to obtain a quality-of-earnings report prepared by an independent, experienced financial professional for the lender’s benefit.

SBA SOP 50 10 8.1 also expands independent business valuation requirements for change-of-ownership acquisitions, requiring qualified valuation professionals for a broader range of transactions.

What Is a Quality-of-Earnings Report?

A quality-of-earnings report, sometimes referred to as a QoE, is an independent financial due diligence analysis used to evaluate whether a company’s reported earnings are accurate and sustainable. The report examines adjustments to reported earnings, such as one-time expenses and owner compensation, as well as related-party transactions and revenue quality, including customer concentration. Lenders use quality-of-earnings reports to better understand a company’s earnings before financing a business acquisition.

Why Is the SBA Requiring Quality-of-Earnings Reports?

The new requirement gives lenders additional information to evaluate a business’s financial performance during the SBA loan underwriting process. While financial statements and tax returns provide important historical information, they may not fully reflect ongoing operating performance. An independent quality-of-earnings report helps lenders assess the earnings and cash flow available to support a loan.

What Are the SBA’s Quality-of-Earnings Requirements?

Under SBA SOP 50 10 8.1, certain SBA 7(a) initial business acquisitions and expansions with a business purchase price of $3 million or more require a quality-of-earnings report prepared by an independent, experienced financial professional. The report must be prepared for the lender and may not be prepared by or for the seller.

The report must review relevant financial records to assess normalized earnings and provide a clearer picture of the business’s underlying financial performance. It must also document adjustments to reported earnings and reconcile cash activity with financial results for the trailing 12 months and two most recent fiscal years.

What Are the SBA’s Business Valuation Requirements?

Independent business valuations are required for most SBA 7(a) change-of-ownership transactions under SBA SOP 50 10 8.1. Lenders may perform internal valuations for certain 7(a) Small and SBA Express loans with a business purchase price of $350,000 or less, unless the buyer and seller have a close relationship.

The valuation must be requested by and prepared for the lender. It must identify the transaction as an asset or stock purchase, specify what is included in the sale (including assumed debt), and document a conclusion of value supported by the valuation professional’s signed certification. Qualified professionals include those holding recognized credentials, such as the Accredited in Business Valuation (ABV) or Accredited Senior Appraiser (ASA) designation.

How Is a Quality-of-Earnings Report Different From a Business Valuation?

Quality-of-earnings reports and business valuations provide different information to support SBA acquisition financing. While one examines a company’s earnings, the other estimates its value.

	Quality-of-Earnings Report	Business Valuation
Question Answered	Are the company’s reported earnings accurate and sustainable?	What is the business worth?
Primary Focus	Historical earnings and adjustments affecting their sustainability	Financial performance, assets, market conditions, and other factors affecting business value
When Required	Certain SBA 7(a) initial acquisitions and business expansions with a business purchase price of $3 million or more	SBA 7(a) change-of-ownership transactions, subject to applicable requirements and exceptions
Professional Qualifications	Independent, experienced financial professional	Qualified, independent valuation professional with applicable credentials

What Do the New Requirements Mean for Lenders, Sellers, and Buyers?

The updated requirements introduce additional financial due diligence into qualifying SBA-financed acquisitions, making early planning increasingly important.

Lenders must account for the time and cost of obtaining the required reports during underwriting. Sellers should prepare financial records supporting reported earnings and business value, while buyers can use the findings to make informed acquisition decisions.

How Should Parties Prepare for the New SBA Requirements?

Lenders should identify applicable reporting and valuation requirements early in the acquisition process. They should also engage qualified, independent professionals early in the process and establish a timeline for completing the required financial due diligence.

Buyers and sellers can prepare by gathering the financial records needed for these reviews, including financial statements, tax returns, bank statements, and documentation supporting adjustments to reported earnings. Having this information readily available can make the review process more efficient.

How KSM Can Help

KSM’s transaction advisory services and business valuation professionals help clients meet the SBA’s updated requirements by providing independent quality-of-earnings and business valuation reports. Contact us via the form below to discuss your SBA-financed transaction.