Short answer: an SBA quality of earnings report is required on every 7(a) initial acquisition or business expansion with a purchase price of $3 million or more, under SOP 50 10 8.1, effective October 1, 2026. The report must include a cash proof covering the trailing twelve months and the last two fiscal years, and the lender must use the earnings figure from that report in the debt service coverage calculation and retain the report in the loan file.
Updated October 1, 2026. SBA’s September 25 technical update narrowed the quality of earnings independence clause. Read what changed and what it means for a lender’s file.
For what an engagement costs, see quality of earnings report cost.
That is a meaningful change, and it lands in the middle of the busiest part of the SBA acquisition market.
What the requirement actually asks for
A quality of earnings report in this context is not a valuation and not an audit. SOP 50 10 8.1 requires the report to cover four things:
- A cash proof. An independent reconstruction of cash receipts and disbursements, reconciling the bank statements to the income statement and the tax return, for the trailing twelve months and the two preceding fiscal years.
- Documented add-backs. Every adjustment to reported earnings, with support — not a schedule of numbers the seller supplied.
- Customer concentration and contract continuity. Whether revenue survives the change of ownership.
- Revenue and margin sustainability after closing.
The mechanical center of that list is the cash proof. Everything else is judgment applied on top of a verified base, and if the base is not verified the judgment has nothing to stand on.
Why this is harder than it sounds
A $3 to $8 million business is frequently one owner, one bookkeeper, several bank accounts opened at different times for different reasons, and a CPA who posts accruals once a year in December. The bank statements arrive as scanned PDFs, sometimes photographs. Transfers move between the owner’s accounts and look like revenue if you are not careful. Merchant processors deposit net of fees on a lag, so the deposit never equals the sale. Cash businesses have a gap between what was rung and what was banked, and closing that gap is the entire point of the exercise.
Reconciling twelve months for one account is an afternoon. Reconciling thirty-six months across several accounts, from scans, tying to both an income statement and a tax return, is weeks of work — which is exactly why the sampled approach became normal, and exactly what the SOP is now closing off.
What changes for lenders
The earnings number is no longer the seller’s number
The lender must use the QoE earnings figure in the debt service coverage calculation. If the analysis rejects add-backs the seller proposed, coverage falls, and the loan may size smaller than the parties expected. That conversation now happens during underwriting rather than after.
Timing becomes a gating item
A requirement that adds weeks to the credit process on every deal above the threshold will show up in closing timelines. Lenders who have not sequenced this into their workflow before October 1 will feel it in November.
Independence matters
SOP 50 10 8.1 is explicit on this point. Appendix 15 states: “The QoE must be performed by an independent, experienced financial professional and must be conducted for the benefit of the Lender. As the QoE is part of the financial due diligence of the transaction, the report must not be prepared by or for the seller.” The technical update effective October 1, 2026 struck one word from that clause. The original version read “borrower or seller.” A buyer may commission the report. What a lender cannot do is accept it untouched: the SOP states the Lender “may not rely upon a QoE report prepared by another party without a review being performed by one of their vendors,” and the review findings must be retained in the loan file with the original report. The lender is the client, and a named professional has to stand behind the conclusions. The bar on seller-prepared reports is absolute, and the business valuation is stricter still: a Lender “may not use a business valuation prepared for the Applicant or the seller,” with no vendor-review path and no dollar threshold. The report has to come from an independent party engaged by the lender.
What changes for buyers
If you are acquiring a business at $3 million or more with SBA financing, budget for a quality of earnings report and build the time into your exclusivity period. The practical risk is not the cost of the report. It is discovering in week six that the add-backs do not survive scrutiny and the coverage ratio no longer supports the price you agreed.
The better play is to know earlier. A cash proof run at the letter of intent stage tells you whether the reported earnings are real before you have spent money on legal and lending. If they are, the later report confirms it. If they are not, you have found out at the cheapest possible moment. See also: do you need a full QoE for a small add-on?
How QoEAgent fits
We built the platform for this work before the SOP required it.
On a recent trailing-twelve-month engagement we processed 431 bank statements across 36 bank accounts — manually scanned PDFs, not spreadsheet exports — and reconciled $100.7 million in deposits and $99.0 million in withdrawals, with 29,823 general ledger transactions behind them. Revenue and expenses each reconciled to within one percent of bank statement cash receipts and disbursements, at a 99.4% average match rate. One variance was left flagged at the end: a $32 difference at a single location.
Complete proof of cash comes back within 24 hours of data ingestion. GAAP-formatted financial statements, including reported EBITDA, follow within 48. The same work done by hand is about four weeks. Those are the first two layers. The full quality of earnings the SOP requires, QoE Essentials, adds the normalized EBITDA schedule with every add-back documented, working capital, customer concentration and a change-of-control review of key contracts. An SBA lender checklist for October 1 sets out what the full report must contain.
- We are an independent firm, not a tool the borrower runs. Reports are produced for the party that engages us, and a CPA accredited in business valuation stands behind the conclusions.
- Every figure traces to source. A matched item drills back to the bank statement line and the general ledger entry behind it. That is what makes a report defensible when a credit committee or the SBA asks.
- We flag rather than resolve. Low-confidence matches surface for human review instead of being silently accepted. In a file that supports a federal guaranty, a number nobody can check is worse than no number.
Contact us if you are a lender sequencing this into your process before October 1, or a buyer who wants the cash verified before the credit package is assembled. Pricing is published: what a quality of earnings costs.
Where QoEAgent sits in this. We are the independent provider, engaged directly by the lender — not a piece of software a borrower, broker or seller runs on their own deal. Our technology does the extraction and reconciliation work: parsing scanned bank statements, rebuilding cash receipts and disbursements, mapping the trial balance. A credentialed professional then reviews that work, forms the conclusions and signs the report. Josh Cashman holds the CFA and ASA; Ron Neufeld holds the CPA/ABV. That is exactly the arrangement SOP 50 10 8.1 contemplates: an independent, experienced financial professional whose report is prepared for the lender.
Related: who can prepare an SBA quality of earnings report — what the SOP says about independence and when a lender may use a buyer-commissioned report.
What the engagement looks like
The lender engages QoEAgent directly. We are the independent provider named in the report, and a credentialed professional signs it — Josh Cashman holds the CFA and the ASA, Ron Neufeld the CPA and the ABV. The work is delivered in three layers.
- Proof of cash — 24 hours. Cash receipts and disbursements rebuilt from the bank statements and reconciled to the income statement and the tax return, for the trailing twelve months and the two preceding fiscal years, exactly as Appendix 15 specifies.
- GAAP-formatted financials — 48 hours. Monthly and twelve-month classified income statements and balance sheets with reported EBITDA, plus a statement of cash flows.
- QoE Essentials. Normalized EBITDA with every add-back documented, working capital and operating cycle metrics, customer concentration, and the change-of-control review — the normalization and sustainability analysis the SOP requires.
Records arrive as scanned paper more often than not on deals this size, and that is the case we are built for. Talk to us about a file, or see what a quality of earnings costs.
Sources
- U.S. Small Business Administration, SOP 50 10 8.1, effective October 1, 2026 — the source text. Quality of earnings and business valuation requirements are in Appendix 15; definitions are in Appendix 3. Everything on this page is taken from that document. The items below are useful background reading, not the authority.
- U.S. Small Business Administration, Information Notice 5000-880695, Issuance of SOP 50 10 8.1
- Doeren Mayhew, SOP 50 10 8.1: What SBA Lenders Should Be Thinking About Before Oct. 1
- Accredited, New SBA Rules for Business Acquisitions Take Effect October 1, 2026
This is a summary of published guidance, not legal or lending advice. Lenders should confirm requirements against the SOP text.