Since SOP 50 10 8.1 came out we have had the same conversations over and over, with lenders, buyers and brokers. Below are the questions that keep coming back, with the answers we give. Where something is genuinely unsettled, we say so rather than guessing with confidence.
For the rule itself and what it requires, start with our summary of SOP 50 10 8.1.
The lender. The SOP requires an independent financial professional engaged by and acting on behalf of the lender. A report the borrower commissioned, or a seller-side report passed along by a broker, does not satisfy it.
In practice, the borrower, in the same way the borrower funds the appraisal and the valuation. The rule governs who the report is for, not whose money it is.
Nothing in the rule gives them one. In practice it depends entirely on your bank. Some are building approved lists and will consider a firm you introduce. Some will not. This is worth asking before you are under LOI, not after. There is more on this, including the questions worth putting to your lender, in who chooses the QoE provider.
The SOP treats them as separate deliverables that work together, with the QoE supplementing the valuation rather than replacing it. It does not, in the language we have read, prohibit one firm from doing both.
Whether a bank wants that is a different question, and we have set out the arguments each way in a piece on same-firm engagements. The short version: we ran an informal poll of SBA lenders on it, and while the sample was small at twenty-two votes, a clear majority said they were indifferent to the structure and cared about quality first.
The threshold is a business purchase price of $3 million or more, measured as the amount in the purchase and sale agreement less any owner-occupied real estate carried at appraised value. Seller notes and the buyer's equity injection do not come out of that number. Real estate does.
Partner and owner buyouts, along with ESOP and cooperative conversions, are exempt, on the reasoning that the existing owners already know how the business runs. Worked examples on both sides of the line are here.
It adds a step, so on paper yes. In practice the delay comes from two things, and neither is the analysis itself.
The first is starting late. If the report is commissioned at underwriting rather than shortly after LOI, it lands on the critical path. The second is document turnaround. An engagement waits on the company, not on us, more often than the reverse.
Time kills deals and everyone in this business knows it. The fix is scheduling the report early and getting the request list to the company the day it is engaged. We have broken the calendar down phase by phase in how long a QoE actually takes.
Yes. What changes is who the engagement runs to, not who sees the analysis. Buyers still use the report in negotiation and still get the same substance.
It removes one. Under the old structure a report prepared for the buyer was frequently relied on by the bank, and if something unflattering turned up, the preparer was standing between a client who wanted funding and a lender who was going to make the decision. Naming one client resolves that. It is less comfortable for buyers and cleaner for everyone.
Because performance follows the originator. Sustained default rates affect a lender's standing with the SBA, and a book of loans that go bad is a problem regardless of who holds the paper. Underwriting quality is not only a balance sheet question.
For providers already doing the work properly, less than people think. The procedures named around the requirement, reconciling internal financials to filed returns and IRS transcript data, testing add-backs against documents, assessing revenue quality and customer concentration, are what a real engagement already includes.
The exception is proof of cash. Tying reported revenue to actual bank deposits is the procedure most often skipped at the cheap end of this market, and lenders historically did not ask for it. Requiring it is, in our view, the most consequential part of the rule.
You are not required to get one, and plenty of lenders will still ask for one when they see heavy add-backs, weak bookkeeping, related-party rent or customer concentration.
The arithmetic is the same either way. A business marketed at $1 million of SDE at a 3.5x multiple is a $3.5 million ask. A ten percent overstatement in that number is $350,000 of purchase price. The SBA drew a line at $3 million. The risk does not stop just below it.
What the SBA does about provider credentials. The rule requires an independent financial professional and does not say much more. There is a wide range of quality in this market, and until there is a standard, the burden sits with each bank to figure out who is good. That is the part of this we would most like to see clarified, and in the meantime it is why we published the questions we think lenders should be asking providers.