SBA SOP 50 10 8.1
What the New Quality of Earnings Requirement Means for Your Next Acquisition

The SBA's newly issued standard operating procedure, SOP 50 10 8.1, is one of the most significant updates to the SBA 7(a) loan program in years. For anyone buying, selling, financing, or advising on a business acquisition, one provision stands out: beginning October 1, 2026, acquisitions with a business purchase price of $3 million or more require an independent Quality of Earnings (QoE) analysis.

In Episode 15 of PBO Perspectives in Business, Finance & HR, CEO Fran San Diego brought together professionals from every side of the table: business attorney Melissa Bustarde of Branfman Mayfield Bustarde & Reichenthal, SBA loan broker Ryan Smith of ThinkSBA, business broker Steven Hanson of Transworld Business Advisors, and PBO Advisory's Quality of Earnings Specialist Josh Siler, CPA. Here is what they want business owners and buyers to know.

What changed, and why

Historically, SBA lenders relied on business valuations, tax returns, financial statements, and their own due diligence to evaluate acquisitions. The new requirement adds another layer designed to validate the sustainability of earnings and cash flow. Importantly, the $3 million threshold is based on the purchase price, not the loan amount.

Ryan Smith sees the change as a way to create a level playing field. Lenders have long applied the SOP differently, and standardizing diligence helps protect borrowers from taking on debt a business cannot support. Many strong lenders were already requiring a QoE on larger deals. The SOP makes that best practice the rule.

What a Quality of Earnings actually tests

A QoE is not an audit, a tax return, or a valuation. As Josh Siler explained, a tax return demonstrates compliance with the IRS, and an audit confirms that financial statements are fairly stated under accounting standards. A QoE answers a different question: are the earnings real, recurring, and supportable?

The analysis arrives at adjusted EBITDA or seller's discretionary earnings and typically includes a review of working capital. It tests add-backs, ties results back to source records, and looks closely at normalization, such as:

• Changes in revenue recognition in the months before a sale
• Bad debt reserves adjusted in ways that lift earnings
• Recurring costs, such as advertising, presented as one-time expenses
• Personal expenses running through the business

That QoE becomes the foundation for the valuation and, ultimately, the purchase price.

“The prudent thing is to address this in the LOI at the outset with a couple of different options. It needs to be addressed up front.”Melissa Bustarde, Partner, Branfman Mayfield Bustarde & Reichenthal

Why sellers should prepare early

Sellers often assume SBA financing is the buyer's concern. Steven Hanson's advice is to think again. The lender will examine the business closely, and preparation starts 12 to 24 months before going to market with clean, well-organized books and records that reconcile to tax returns.

For businesses with EBITDA of $1 million or more, a sell-side QoE before listing is becoming a smart strategy. Even if the lender orders its own independent report, the seller gains confidence in the numbers, identifies adjustments early, and sets realistic expectations for price and timing.

Deal documents need to address the QoE up front

Melissa Bustarde recommends addressing the QoE directly in the letter of intent. What happens if the report comes in below expectations? Options include open renegotiation, an exit for the buyer, or an automatic purchase price adjustment. That language should carry into the purchase agreement, and working capital definitions should align with the QoE to help prevent disputes after closing. Sellers can also agree on a price floor in advance, so every party knows the parameters from day one.

What buyers should expect

Larger deals call for stronger buyers. Using a hypothetical $6 million manufacturing acquisition, the panel highlighted several considerations:

• The individual SBA 7(a) loan maximum remains $5 million, so meaningful equity is required
• Lenders look closely at the buyer's personal liquidity after closing
• Working capital is expected to receive greater scrutiny
• Some lenders offer pari passu structures that pair an SBA loan with a conventional loan

Timelines may also lengthen. A QoE is a sprint that depends on timely data, so a delayed closing can mean refreshing the analysis.

The year ahead

The panel expects fewer but higher quality SBA 7(a) acquisitions, more sell-side QoE preparation, some creative structuring around the $3 million threshold, and more seller financing where deals need support. With more buyers in the market than quality businesses for sale, well-prepared companies should continue to sell. As Fran San Diego summarized, the new SOP adds integrity to the process, and better prepared buyers and sellers lead to better closings.

This article is for general informational purposes and is not legal or lending advice. Consult your attorney, lender, and advisors about your specific transaction.

Listen to the full episodeThe New SBA SOP | What the Quality of Earnings Requirement Means for Business Acquisitions

Go to Episode 15 →