What the SBA's New Quality of Earnings Requirement Means for Business Acquisitions

The SBA's new SOP 50 10 8.1, effective October 1, 2026, adds a formal Quality of Earnings (QoE) requirement to certain SBA-financed acquisitions among other changes. Financial due diligence has always mattered to buyers, but for covered deals, a QoE is no longer optional, and buyers, lenders, and advisors will need to build it into deal timelines, financing, and diligence plans from the outset.

What Changed?

Lenders must now obtain a Quality of Earnings report for initial acquisition and business expansion transactions with a business purchase price of $3 million or more. Owner-occupied real estate is excluded when determining whether that threshold is met.

The QoE must be performed by an independent financial professional / firm for the benefit of the lender, as a report prepared by or for the buyer or seller does not satisfy the requirement (as currently written and subject to change). It is also required in addition to any business valuation already part of the financing process.

The rule applies to applications issued an SBA loan number on or after October 1, 2026, which makes timing especially important for deals currently in motion.

Why Does a Quality of Earnings Matter?

A QoE looks past reported earnings to determine whether they are sustainable, supportable, and representative of ongoing operations. That typically means identifying nonrecurring revenue or expenses, evaluating owner-related adjustments, assessing customer concentration, and reconciling financial information across multiple sources. For covered transactions, it gives lenders another layer of diligence on the cash flow actually supporting the deal.

What Does This Mean for Buyers and Lenders?

The QoE report must reconcile financial statements, tax returns, and internal records into a normalized earnings figure, including a cash proof analysis (covering the trailing 12 months and last two fiscal years) and an evaluation of nonrecurring items, owner compensation adjustments, related-party transactions, and customer concentration.

Lenders are then required to use that normalized earnings figure, not the seller's or buyer's, when calculating debt service coverage (“DSCR”). The minimum debt service coverage ratio increased from 1.15x to 1.25x for initial acquisitions. If the QoE supports lower earnings than originally anticipated, it can change the financing structure or the equity required to close. The example below illustrates how changes in adjusted EBITDA impact the debt service coverage ratio.

Example

Seller presents:

• Adjusted EBITDA = $1,600,000

Annual SBA loan payments:

• Principal = $800,000
• Interest = $400,000

Total annual debt service:

• $1.2 million

So:

DSCR = $1.6M / $1.2M = 1.33x

That means the company generates 33% more cash than required to make its annual debt payments.

Actual adjusted EBITDA in QoE = $1,400,000

Now:

Before QoE

DSCR = 1.33x

After QoE

DSCR = 1.17x

This one change in the DSCR requirement may reduce:

• maximum loan amount
• purchase price
• leverage
• or require more buyer equity.

What Should Buyers Be Thinking About Now?

Start the conversation with your lender and advisors early before you are deep into diligence. If there is a chance your acquisition falls within the new requirement. Knowing whether a QoE will be required, what information it will draw on, and how the lender plans to use the findings makes for a more realistic deal timeline and fewer surprises later.

Pay close attention, too, to the earnings behind the purchase price. A seller may present adjusted EBITDA or other normalized figures during the sale process, but the SBA-required QoE is an independent read on the earnings that actually support the transaction. When the two differ materially, the gap can show up in financing terms, equity requirements, and the economics of the deal itself.

It is worth treating the QoE as more than a compliance step. The same analysis the lender requires can sharpen your own read on the business: Which earnings are recurring? Where are the concentrations or dependencies? Are the adjustments reasonable? What could affect cash flow after closing? Those are worth answering whether or not the SBA requires the report.

Considering an SBA-Financed Acquisition?

The new requirements under SOP 50 10 8.1 are worth addressing early, before they become a bottleneck in your timeline. Our team can help you navigate what the rule means for your transaction and help you answer the question that matters most: Do the financial fundamentals of this business actually support the deal you are considering?