The Small Business Administration (SBA) recently announced a change that could significantly impact how lower middle market acquisitions are financed.
What the New SBA Quality of Earnings Requirement Means
Beginning Oct. 1, 2026, SBA SOP 50 10 8.1 will require an independent quality of earnings (QoE) analysis for certain SBA-financed change-of-ownership transactions with a business purchase price of $3 million or more. This requirement is intended to strengthen the reliability of the earnings used to support SBA lending decisions.
The analysis must be ordered by and prepared for the lender, not the buyer.
Historically, many SBA-backed acquisitions relied primarily on tax returns, financial statements, and valuation reports. The new guidance recognizes an important distinction: value and normalized earnings are not interchangeable.
A business may report strong earnings, but key questions still need to be answered before lenders can determine whether those earnings are sustainable enough to support debt repayment:
- Are earnings recurring?
- Are add-backs supportable?
- Is customer concentration creating risk?
- Do reported earnings reconcile to cash flow?
- Will margins hold after the transaction closes?
In many ways, this change represents the continued evolution of the lower-middle-market. QoE analyses have long been standard practice in private equity-backed and larger corporate transactions. By incorporating a formal QoE requirement into certain SBA-financed acquisitions, the SBA is effectively bringing a higher level of financial diligence to a broader segment of the market.
How SBA SOP 50 10 8.1 Impacts Business Owners, Lenders, and Acquisitions
For business owners and CFOs, the new requirement means financial statements will be subjected to a higher level of analysis before financing is approved. Deals that previously relied on seller-prepared financials and standard valuation reports may now require a more rigorous review of adjusted EBITDA and cash flow. Companies considering a future sale or acquisition should begin evaluating their financial reporting practices now to ensure they can withstand third-party diligence.
How QoE-Adjusted Earnings Affect SBA Loan Underwriting
For lenders, the SBA’s new requirement helps reduce underwriting risk by providing an independent assessment of the earnings used in debt service coverage calculations. Importantly, the QoE-adjusted earnings figure becomes a key component of the underwriting process, making the report far more than a compliance exercise. The quality and sustainability of earnings will play a more direct role in determining whether a transaction can support the proposed debt structure.
While the new requirement might add time and expense to qualifying transactions, it will ultimately improve transparency, strengthen lender confidence, and help ensure acquisition financing is based on sustainable earnings rather than optimistic assumptions.
For CFOs, business owners, and lenders alike, early preparation is advisable to navigate this new landscape successfully.
If you are evaluating an acquisition, preparing a business for sale, or seeking to better understand how SOP 50 10 8.1 may impact a future transaction, please contact us. The CBIZ Transaction Advisory Services team works with buyers, lenders, investors, and business owners to evaluate earnings quality and navigate transaction-related diligence with confidence.
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