The part of SOP 50 10 8.1 that gets the strongest reaction is not the $3 million threshold. It is the sentence saying the report has to be prepared by and for the lender.
Buyers read that and hear: someone else picks my diligence provider, I am probably paying for it, and the report is not really mine. That reaction is fair. It is also mostly right.
The Quality of Earnings report has to be prepared by an independent financial professional engaged by and acting on behalf of the lender. It cannot be a report the borrower commissioned for their own diligence, and it cannot be a seller-side report handed over through a broker.
There is no language giving the borrower a right to choose the provider. In practice the lender engages the firm and the borrower funds it, the same way they fund the appraisal, the business valuation and the environmental report.
A reading has been circulating that goes roughly like this. The buyer orders the report but names the lender as the intended user. The buyer did not prepare it. It benefits the lender. Requirement met, and the buyer keeps control of who does the work.
We do not think that survives contact with the text. The SOP names who the report should be for and then separately confirms who it should not be for, which reads like language written specifically to close that door. And from the preparer's side the question answers itself: if the buyer engaged us, the buyer is our client, and the report was prepared for our client. Putting a different name in the recipient line does not change who we owe a duty to.
The version of this that concerns us more is subtler. If a buyer can steer the engagement, a buyer can steer it toward whoever is known for the lightest touch. That is the outcome the rule exists to prevent, and it is why we expect the strict reading to be the one that holds.
Two reasons, and both are defensible.
The SBA is guaranteeing the loan, so it wants the bank's interests in the primary seat. That is straightforward.
The second reason is chain of custody. If a report is prepared for the buyer but relied on by the bank, who the preparer owes a duty of care to is genuinely unclear, and that ambiguity only becomes a problem at the worst possible moment. We have felt the pull of it in practice. We surface everything significant we think a buyer needs to know, because they are the one who has to operate the business. A buyer does not necessarily want every one of those observations in front of the bank while funding is pending. When the same document serves both purposes and nobody has said which relationship governs, that is an awkward place for everyone to be standing.
What is lost is real: choice of provider, and the ability to keep a soft finding between you and your own advisors.
What is not lost is the analysis. The buyer still reads the report, still uses it in negotiation, and still gets the same work product. The difference is who the engagement runs to, not what is in it.
The honest downside is that some buyers will end up paying for a second, buyer-side review on top of the lender's. If you are going to do that, decide early rather than after the first report lands, because the second one is much harder to justify once you have already seen the numbers.
The concern we hear most from buyers is not about quality. It is about referral fees. If a bank, or an individual at a bank, is taking a fee for steering Quality of Earnings work, the buyer is paying for that fee and the incentive is pointed in the wrong direction.
We do not pay referral fees for this work and do not plan to. It is a fair question to ask any provider directly, and a fair one to ask your lender.
This is not favorable to buyers and buyers are right to dislike it. But the alternative, requiring a report and leaving the duty of care ambiguous, would have been worse for everyone including them.
The version we would like to see is a middle one: the lender holds the client relationship, and the borrower gets to interview two or three approved firms. That keeps the duty clear and still gives the person writing the check a say in who does the work. Whether banks land there is up to the banks.