For most of the last decade, whether to get a Quality of Earnings report on a small business acquisition was a judgment call. The buyer weighed the cost against the risk, the lender had an opinion, and the deal moved either way.
That changed with SOP 50 10 8.1.
Effective October 1, 2026, SBA lenders are required to obtain an independent Quality of Earnings report on Initial Acquisition and Business Expansion loans where the business purchase price is $3 million or more. The QoE is required in addition to the business valuation, not instead of it.
Three details matter when you are working out whether your deal is in scope:
We have written up the threshold arithmetic in more detail, with worked examples on both sides of the line, in a separate piece on how the $3 million test is measured.
This is the part that gets misread most often, and it is worth being blunt about.
The report has to be prepared by an independent financial professional engaged by and acting on behalf of the lender. A Quality of Earnings report that the buyer commissioned for their own diligence, or that the company commissioned to market itself, does not satisfy the requirement. The SOP names who the report should be for and then confirms who it should not be for, specifically to remove any doubt.
There has been some creative reading of this since the SOP came out. We do not think it holds. The SBA is guaranteeing the loan, so it wants the bank's interests in the primary seat. There is also a practical reason: chain of custody and duty of care. If a report is prepared for the buyer but relied on by the bank, the question of who the preparer owes a duty to is genuinely unclear. Preparing it for the lender removes the ambiguity.
None of that reduces what the buyer gets out of it. The buyer still reads the report, still uses it in negotiation, and still gets the same analysis. The difference is who the engagement runs to. We have gone through the buyer's side of this, including whether you get any say in the provider, in who chooses the QoE provider under the new rule.
A business valuation and a bank credit review answer two different questions, and neither one is the question a Quality of Earnings report answers.
A valuation tells you what a set of financial results is worth. It takes the earnings as given. It does not go behind them to confirm that the revenue landed in the bank account or that the add-backs are real.
A credit review asks whether the cash flow supports the debt. Lenders underwrite to a debt service coverage ratio, and if the file clears, it moves. The financials being tested are the ones the borrower supplied.
A Quality of Earnings report is the layer underneath both. It ties reported revenue to deposits, reconciles the books to filed tax returns and IRS transcript data, tests each add-back against source documents, and rebuilds seller's discretionary earnings from the ground up. When earnings turn out to be overstated, the valuation was built on a number that was never there, and the coverage ratio was calculated on the same number.
The SBA looked at how these loans perform and concluded that the first two layers were not enough on their own. That conclusion is the useful part, and it does not stop being true at $2,999,999.
You are not required to get one. You may still want one, and lenders increasingly ask for one anyway when they see heavy add-backs, weak bookkeeping, related-party rent, or customer concentration.
The arithmetic is the argument. At this size, a business trading at a 3.5x multiple with $1 million of claimed SDE is a $3.5 million valuation. A 10 percent overstatement in that SDE is $350,000 of purchase price. A report that costs a few thousand dollars is not a close call against that exposure.
The overstatements we see are rarely fraud. They are the ordinary result of books built for a tax return rather than a sale: personal spending running through the business, cash-basis timing that flatters a year, a family member on payroll, one-time revenue sitting next to recurring revenue.
If you are a lender, decide how you want QoE reports commissioned and get that into your process before October 1. Engagements written to the buyer will have to be redone. We have put the operational side of that into a checklist for commissioning a compliant QoE, covering engagement letters, minimum scope, timing and provider vetting.
If you are a buyer with a deal near the threshold, ask your lender early rather than at underwriting. Finding out during the loan process that the report you already paid for does not qualify is an expensive way to learn the rule. Getting your documents together before the engagement starts is the other thing that pays for itself.
If you are a broker, expect the question on every deal over $3 million and expect a sharper look at the add-backs in your CIM. Clean, supportable adjustments have always been better for the seller. They are about to be better for the process too.
For everything else people keep asking about the rule, from who pays to whether it will slow closings, see the questions everyone is actually asking.