SBA SOP 50 10 8.1: quality of earnings required at $3 million

What changed

The rule

• Effective date: October 1, 2026, under SBA SOP 50 10 8.1, Appendix 15, Paragraph C.1.
• Trigger: a business purchase price of $3,000,000 or more. The business purchase price excludes owner-occupied commercial real estate: the lender removes the real estate’s appraised value from the contract price. The test is made before buyer equity, seller debt or any other financing.
• Covered transactions: business expansions and initial acquisitions. Owner buyouts, ESOPs and cooperatives are exempt. So is the purchase of an owner-occupied special purpose property, at any price.
• Who prepares it: an independent, experienced financial professional, for the benefit of the lender. It may not be prepared by or for the seller. A QoE the buyer ordered may be used only after one of the lender’s approved vendors reviews it.
• Scope: reconcile the accountant-prepared statements, tax returns, internal statements and IRS transcripts to a normalized earnings figure; document every add-back; assess revenue quality and customer concentration; and include a cash proof for the trailing 12 months and the last two fiscal years.
• How it is used: the lender must use the QoE earnings for debt service coverage. If coverage does not support the business valuation and the proposed debt, the loan is reduced or more equity goes in.

What it does not change

The business valuation is still required

A quality of earnings report tests whether the earnings are real. A business valuation concludes what the business is worth. The SOP requires the QoE in addition to the business valuation, not in place of it. The valuation must still be ordered by and prepared for the lender, and must allocate value among land, building, equipment and intangible assets.

For lenders

What to flag now

• Test the purchase price, net of the real estate’s appraised value, against the $3,000,000 line at application.
• Under PLP authority, the business valuation and any required QoE must be engaged, with an engagement letter, when the SBA loan number is issued. Non-delegated applications submit both with the package.
• Build the QoE into the timeline and the closing costs. Both reports may be passed to the borrower and count toward equity.
• Order the business valuation and any equipment appraisal so they can use the QoE’s adjusted earnings when it is available.
• Watch deals priced just under the line. The real estate appraisal now moves the threshold.

Our approach

How we use it

When a QoE exists, our business valuations reconcile normalized earnings to it and explain any difference. Equipment appraisals that report fair market value in continued use use the same earnings to test whether the business supports the equipment value.

Source: SBA SOP 50 10 8.1, Technical Policy Updates, effective October 1, 2026, Appendix 15 (7(a) Changes of Ownership), Paragraphs A.1 and C.1, and the definition of Quality of Earnings in the glossary; sba.gov. See also SBA Information Notices 5000-880695 (August 14, 2026) and 5000-882227 (September 2026). This is general information, not legal or credit advice.