The SBA Quality of Earnings requirement, in plain English

1. Which deals need a QoE

7(a) Initial Acquisitions and Business Expansions where the business purchase price is $3 million or more. The QoE is required in addition to the business valuation.

"The $3 million threshold is determined before the application of buyer equity, seller debt, or other financing sources."SBA SOP 50 10 8.1, Appendix 15

• Exempt: Owner Buyouts and ESOP & Cooperative transactions, because existing owners keep operational knowledge.
• Real estate: the appraised value of owner-occupied commercial real estate is removed from the contract price to get the business purchase price.
• Earnouts: seller earnouts are prohibited on these loans (buyer rebates are allowed).
• 504 loans: the requirement is written for change-of-ownership transactions using a 7(a) loan; the 504 chapters don't mention a QoE.
• Below $3M: no QoE is required by the SOP, though lenders may still ask for one.

2. Who can prepare it

"The QoE must be performed by an independent qualified financial professional and must be conducted for the benefit of the Lender."SBA SOP 50 10 8.1, glossary

The report must not be prepared by or for the seller. The SOP names no required credential and does not define "independent" further. Valuators, by contrast, must hold an ASA, CBA, ABV, CVA, or BCA credential. Ask your QoE provider for a written independence policy. Here's ours.

3. What the QoE must contain

• A reconciliation of accountant-prepared financial statements, tax returns, internal financial statements, and IRS transcript data, producing a normalized, adjusted earnings figure reflecting recurring, arm's-length operations
• A Cash Proof that independently reconstructs receipts and disbursements by reconciling bank statement data to the income statement and tax return
• Documentation of all add-backs and adjustments: non-recurring items, above- or below-market owner compensation, related-party transactions, deferred maintenance, and cash vs. accrual differences
• An assessment of revenue quality and sustainability: customer concentration, contract continuity, and whether revenue and margins will hold after the sale

"The Cash Proof ... must be performed on both a trailing 12-month basis and the last two fiscal years. If the acquired business has been operating for less than two years, the scope can be reduced accordingly."SBA SOP 50 10 8.1, Appendix 15

The SOP does not say whether the cash proof must be monthly or annual. That is left to lender policy.

4. How the lender uses it

The lender must use the QoE earnings in the debt service coverage determination and keep the report in the credit file. If coverage doesn't support the valuation and proposed debt, the loan amount must be reduced, and more equity can fill the gap.

5. Buyer-commissioned QoEs

"The Lender may not rely upon a QoE report prepared by another party without a review being performed by one of their vendors."SBA SOP 50 10 8.1, Appendix 15

Lenders may elect to have a buyer's own QoE reviewed by an approved vendor to help mitigate costs. The review findings go in the loan file with the original report. The SOP does not require a reliance letter for this. See our QoE Review.

6. Timing

• Non-delegated (LGPC) submissions: the business valuation and QoE are submitted with the application.
• PLP: they may be completed after the SBA loan number issues and before closing, but must be "formally engaged (i.e., a vendor must have been retained, and an engagement letter must be in place)" when the number issues.
• Until the work is complete, the credit memo includes an estimate of business value, updated afterward with the QoE's effect on DSC.

7. Who pays

"The out-of-pocket costs associated with all financial due diligence reports may be passed on to the borrower. Any funds expended by the Applicant on the report can count toward the equity injection."SBA SOP 50 10 8.1, Appendix 15

Whether the fee can be paid from loan proceeds isn't addressed in Appendix 15; confirm with your lender.

Questions the SOP leaves to lenders

Report standard (consulting vs. agreed-upon procedures), professional liability limits, approved-vendor criteria, and monthly vs. annual cash proof. Expect these in each lender's written SOP 8.1 policy.

Source: U.S. Small Business Administration, SOP 50 10 8.1 Technical Policy Updates, effective October 1, 2026 (legacy.sba.gov). This guide is general information, not legal advice or an SBA determination.