It depends mostly on how the deal is paid for. On an SBA 7(a) acquisition loan where the business purchase price is $3 million or more, the lender needs a quality of earnings report, and the lender has to engage it. On smaller SBA deals, owner-financed deals, all-cash deals and sponsor-backed deals, no rule requires one. There the decision sits with the lender, the capital partners or the buyer, and it turns on how much of the price rests on numbers no one has tested.
In short, by how the deal is financed:
| How the deal is financed | Is a QoE required? | Who usually engages it | What drives the decision |
|---|---|---|---|
| SBA 7(a), business purchase price $3 million or more | Yes, on Initial Acquisition and Business Expansion loans | The lender | SBA SOP 50 10 8.1 |
| SBA 7(a), under $3 million | Up to the lender | The buyer or the lender | The lender's credit policy |
| Owner financing | No rule requires one | The buyer | The buyer's risk on the note payments |
| All cash | No rule requires one | The buyer | The buyer's own risk |
| Sponsor or search fund equity | Commonly a condition of the capital partners | The sponsor or searcher | Investor expectations, plus the lender if there is one |
No general law requires one for the sale of a private business. The requirement comes from whoever supplies the money.
The clearest case is the SBA. Under SBA SOP 50 10 8.1, effective October 1, 2026, Initial Acquisition and Business Expansion loans where the business purchase price is $3 million or more need a QoE from an independent financial professional engaged by and acting on behalf of the lender. The threshold is the price in the purchase agreement less owner-occupied real estate at appraised value. The buyer's equity injection and any note carried back by the owner are not deducted. Partner or owner buyouts and ESOP or cooperative conversions are exempt. The QoE supplements the business valuation. It does not replace it. How the price is measured is covered in the $3 million SBA threshold, explained.
Outside that rule, a QoE is a condition someone chooses to set. Confirm with your lender how they apply the rule to your deal.
The lender sets its own requirements. Some lenders ask for a QoE on smaller acquisitions as a matter of credit policy. Others underwrite from the tax returns and the company's financial statements.
Lender underwriting and a QoE answer different questions. Underwriting asks whether cash flow covers the loan payments. A QoE asks whether the cash flow is there: whether reported revenue ties to bank deposits, whether the books tie to the filed returns, and whether the add-backs have documents behind them. A loan approval says the bank is willing to lend against the numbers. It is not a test of them.
Below the threshold, either the buyer or the lender can engage the QoE. Ask the lender which they prefer before the engagement letter is signed, so the report goes into the loan file without a second round.
Owner financing changes who carries part of the risk. It does not change where the payments come from. The buyer pays the note out of the business's cash flow. If earnings turn out lower than the CIM showed, the note payments are still due, on top of any bank debt.
Buyers sometimes read an owner's willingness to carry a note as a sign the numbers are sound. It may be. It is not a test of them. A QoE ties the earnings behind those payments to deposits and filed returns before the note is signed.
Terms that tie the note to later performance are sometimes negotiated. The wording is for your attorney.
No lender means no lender requirement. It also means nobody else is checking. On an SBA deal, the bank has its own reasons to look hard at the numbers. On an all-cash deal, the buyer carries the full loss if the earnings are not there, and the buyer is the only party positioned to test them.
An illustration with round numbers. A buyer agrees to pay 3 times $400,000 of SDE, or $1,200,000. A QoE finds $60,000 of add-backs with no documents behind them beyond the owner's description. Tested SDE is $340,000. At the same multiple, that is $1,020,000, a $180,000 difference. Whether the multiple holds is a negotiation. The report gives both sides a documented figure to negotiate from.
Here the requirement usually comes from the investors. Capital partners commonly ask for a third-party QoE before they commit. Searchers often use an SBA 7(a) loan as well, so the report has to work for both the investors and the lender.
Sponsor deals are often larger than SBA size. At TAS, those are scoped and priced to the work after a call, and the fee is quoted before work starts. A deal that includes more than one business carries an added fee, quoted once the documents are in.
Before an LOI, a lighter recast is commonly used to decide whether a deal is worth pursuing at all. These usually rework the P&L using the CIM add-backs. They generally do not include proof of cash, tax return reconciliation, working capital analysis or a management Q&A. The QoE providers compared page sets the tiers side by side.
After the LOI, the question is narrower: which parts of the price have not been tested yet. A full QoE runs ten procedures, starting with cash proof and reconciliation to three years of filed tax returns and IRS transcript data, and including working capital, customer concentration and a full management Q&A. The quality of earnings page lists them. Timing relative to the LOI is covered in should you get a QoE before or after the LOI.
Whether to skip one is a judgment about risk, and it belongs to the buyer. What the report changes is what that judgment rests on: tested figures and the remaining differences, rather than the CIM alone.
No. The requirement applies to Initial Acquisition and Business Expansion loans where the business purchase price is $3 million or more. Partner or owner buyouts and ESOP or cooperative conversions are exempt. Below $3 million, the lender decides. Confirm with your lender.
On loans of $3 million or more, no. The rule calls for a QoE from a provider engaged by and acting on behalf of the lender. Below that, it depends on the lender.
Our fee is $7,500 flat for SBA-sized deals, whether or not SBA financing is used. Larger deals are scoped and priced after a call. There is no hourly billing. An added fee applies when the company has no financial statements and they have to be built, or when the deal includes more than one business, quoted once the documents are in. The work generally takes two to four weeks from receipt of documents, and the company's response time sets most of the pace. Details are on the pricing page.
A QoE runs on source documents. Without bank statements, revenue cannot be tied to deposits, and the report says so plainly rather than estimating. Buyers commonly raise a refusal to share them as a question before going further.