SBA Quality of Earnings Rule: A Guide for Community Banks

As of October 1, 2026, SBA SOP 50 10 8.1 requires an independent Quality of Earnings (QofE) report on 7(a) loans financing business acquisitions and expansions priced at $3 million or more. For institutions with SBA lending programs, this requirement is likely already surfacing in deals moving through underwriting. Here is what triggers it, what a compliant report has to include, and why now is a good time to rethink how your institution sources Quality of Earnings work.

SOP 50 10 8.1 sorts SBA change-of-ownership transactions into four categories: Initial Acquisition, Business Expansion, Owner Buyout, and Employee Stock Ownership Plan (ESOP) or cooperative conversion. Only the first two carry the new Quality of Earnings mandate, and only once the business purchase price reaches $3 million. Owner Buyouts and ESOP or cooperative conversions stay exempt at any price, largely because the existing owner typically remains involved in some capacity.

That $3 million figure is measured before buyer equity, seller financing, or any other funding source is factored in, so it is the price of the business itself that matters, not the size of the 7(a) loan behind it. Owner-occupied commercial real estate included in the deal is carved out of that number as well, since it gets appraised separately.

The SOP is specific about who can produce this report and for whom. It has to be obtained for the benefit of the lender and prepared by an independent professional who is not also working for the borrower or seller on the same deal. The Quality of Earnings is required in addition to the business valuation already in place, not instead of it.

One requirement worth flagging for anyone reviewing files line by line: the Quality of Earnings has to include a Cash Proof, reconciling bank statement activity to the income statement and tax returns across the trailing twelve months and each of the two fiscal years before that. Once that report lands, the lender is expected to use its earnings figures in the debt service coverage determination and keep the report in the credit file.

A borrower or buyer can still commission a Quality of Earnings of their own and share it with the lender through a reliance letter, but that document does not satisfy the SBA requirement by itself. The lender still needs a professional of its own engaged on the file, which is the detail many lenders are still sorting out.

Deals already underway do not automatically fall under the old rule. What determines which version of the SOP applies is not the application date or the letter of intent. It is the moment a loan number is actually issued. A file submitted in late September that does not clear until early October is underwritten under the new requirement, so that trigger point is worth confirming on anything currently moving through the pipeline rather than assuming it.

Because the report has to be obtained for the lender's benefit, sourcing it becomes something the bank controls directly, rather than something that arrives through a borrower's advisors. A bank that works with the same firm across its qualifying deals gains consistency in methodology and a provider already familiar with the documentation SOP 50 10 8.1 expects to see.

That relationship tends to run in both directions. A provider a bank's credit team already trusts on the lending side is often the same firm its commercial clients turn to when they are the ones buying or expanding a business of their own.

CSH's Transaction Advisory Services team prepares independent Quality of Earnings reports for lenders financing SBA-backed acquisitions and expansions, and understands the Cash Proof and debt service coverage documentation the new SOP requires. If your institution is still working out how to handle this requirement, or is looking for a Quality of Earnings partner it can call on across its SBA pipeline, that is worth a conversation.