New SBA Rules for Business Buyers on October 1, 2026: Quality of Earnings, Cash Proof and DSCR (SOP 50 10 8.1)

On October 1, 2026, the SBA's new lending rulebook, SOP 50 10 8.1, takes effect. For buyers, an SBA 7(a) loan to buy a business now needs a Quality of Earnings report ordered by the lender when the purchase price is $3 million or more and the deal is an Initial Acquisition or a Business Expansion, and that report must include a "Cash Proof" that ties the seller's bank activity to the books and tax returns. Most buyers are under $3 million, and some of these rules still apply to them.

Is this you?

Which rules apply to a deal already in process?

Your LOI date does not decide this, and neither does your closing date: the new rules apply if your SBA loan number is issued on or after October 1, 2026, and the old ones apply to an application submitted by September 30, 2026. The SBA's notice applies the new SOP to applications "issued an SBA loan number on or after" October 1, 2026, and the old one to applications "submitted through September 30, 2026." The loan number comes late: a lender with delegated authority requests it after approving your credit itself, and other lenders get it after the SBA reviews the application. If yours won't be issued by September 30, plan on the new rules, ask your lender whether it has delegated authority, and get its answer on which date controls your file in writing.

What is a Quality of Earnings report?

A Quality of Earnings report, or QoE, is a hired accountant's check on how much the business really earns, and an SBA lender must order one when the purchase price is $3 million or more on an Initial Acquisition or a Business Expansion. It starts from the earnings the seller reports and adjusts them, up or down, until the number reflects normal, ongoing operations with everyone paid a fair rate.

The SOP describes it this way: the QoE "must reconcile the business's accountant-prepared financial statements, tax returns, internal financial statements, and IRS transcript data to produce a normalized, adjusted earnings figure that reflects recurring, arm's-length operations."

The common adjustments in practice (general practice, not SBA text):

Model owner pay first; it is often one of the largest adjustments on a small deal. On larger deals a QoE also looks at working capital and how much revenue depends on a few customers.

To project your own QoE number, start from EBITDA on the tax returns (earnings before interest, taxes, depreciation and amortization), not the broker's figure. Make only the adjustments you can document, and pay whoever will run the business a market salary. That is why the number your lender uses is not the broker's seller's discretionary earnings (SDE), which counts the owner's pay as earnings. The SOP requires that "the ownership compensation of the Applicant must be sufficient to support their current obligations and living expenses."

What is a Cash Proof?

A Cash Proof matches every dollar in and out of the seller's bank accounts against what the books and tax returns say happened, period by period; the SBA requires one inside the QoE at $3 million and up, and the same check is worth running on a smaller deal. Money reported as sales should show up as deposits. Money that left should show up as recorded expenses, loan payments or owner draws. Anything that doesn't match gets explained.

The SOP's exact language: "a financial analysis that reconstructs cash receipts and disbursements by reconciling bank statement data to the income statement and tax return for each period under review." It covers "a trailing 12-month basis and the last two fiscal years," and exists "to identify discrepancies in income and undisclosed expenses." The receipts side catches revenue that never reached the bank. The disbursements side catches expenses that were paid but never recorded, which make earnings look better than they are.

A Cash Proof is required inside the QoE on deals of $3 million and up. On a smaller deal, nothing stops you from running the same check yourself.

How the lender sizes your loan: the DSCR test

The debt service coverage ratio (DSCR; the SBA writes "DSC") tests whether the business earns enough to make all of its loan payments, and the SBA's minimum is 1.25 to 1 on an Initial Acquisition, an Owner Buyout, or an ESOP or cooperative purchase, and 1.15 to 1 on a Business Expansion. The ratio is the business's EBITDA, from the last fiscal year or the average of the last two, divided by all of its principal and interest payments after the purchase. In the SOP's words: "earnings before interest, taxes, depreciation, and amortization (EBITDA) divided by the combined debt service post-transaction." Combined means every loan payment: the new SBA loan, any seller note still being paid, and any existing business debt you keep, such as an equipment loan or a line of credit. If a seller note pays interest only, the lender "must apply an amortization that does not exceed 10-years" when it runs the test.

When a QoE is required, "The Lender must use the earnings from the QoE in the Debt Service Coverage (DSC) determination." And no lender can lean on your plans for next year: "The Lender must evaluate the Applicant's post-closing financial projections but may not rely on them to meet the DSC requirement." The minimum ratio depends on the deal:

A 1.25:1 minimum means the business must earn $1.25 for every $1.00 of loan payments. If it doesn't, the loan gets smaller: "If that Debt Service Coverage does not support the business valuation and proposed debt structure, the loan amount must be reduced accordingly." You can close a gap with more equity, but the loan has to fit the earnings.

Capex. EBITDA leaves out capital spending, and a lender may or may not subtract "unfunded capital expenditures." As a buyer, treat that as a warning, not a comfort: capex can only be put off so long, and an owner who stopped reinvesting before the sale leaves that bill for your first years.

Doing the math on your own deal

These examples use an illustrative 10.5% rate over 10 years. Ten years is the longest the SOP allows for the business part of an acquisition loan (only a real estate portion can run longer); use the rate your lender quotes you. At 10.5% over 10 years, every $100,000 borrowed costs about $16,190 a year in principal and interest.

How big a loan can the earnings support? Say the tax returns show EBITDA of $400,000, and the QoE adds back $60,000 of the owner's personal expenses and $40,000 of one-time legal fees, for $500,000.

1. Divide by the minimum ratio: $500,000 ÷ 1.25 = $400,000 a year available for loan payments.
2. Divide by the cost per $100,000: $400,000 ÷ $16,190 = about 24.7.
3. Multiply by $100,000: a loan of about $2.47 million, if there is no other debt.

The free SBA deal calculator works the other way round: give it a purchase price and it returns the annual debt service and two coverage ratios, one on the SDE you enter and one after the pay of whoever runs the business, which is the closer of the two to the EBITDA basis used above. It does not size the loan for you; that is the math above.

Worked illustration: a $3.5 million HVAC company

A fictional HVAC company sells for $3.5 million as an Initial Acquisition, over the $3 million QoE line. The buyer puts in $350,000 and borrows $3,150,000 at 10.5% over 10 years, about $510,000 a year in payments. The broker shows adjusted EBITDA of $650,000 after a market salary: a 1.27x DSCR, just over 1.25.

The QoE, Cash Proof included, finds that $90,000 of "family payroll" added back as discretionary paid for real, ongoing work, and that $80,000 of revenue was a one-time equipment sale. QoE earnings: $480,000.

$480,000 ÷ $510,000 is 0.94x, below the floor. The business supports about $2,370,000 at 1.25:1, roughly $780,000 less than planned, so the buyer brings much more equity or the price moves to the QoE number.

Does my deal need a Quality of Earnings report?

Yes, if the purchase price is $3 million or more and you are buying the business for the first time (Initial Acquisition) or buying one company with another (Business Expansion); below $3 million, and on an Owner Buyout or an ESOP or cooperative purchase at any price, the SBA does not require one. The $3 million test uses the Business Purchase Price: the number in the purchase agreement, minus any owner-occupied real estate in the deal, measured before your equity, a seller note or any other financing.

The QoE is the lender's report, not yours. The SOP requires that it be "conducted for the benefit of the Lender" and says "the report may not be prepared by or for the borrower or seller," so your own CPA's work cannot replace it. For the same reason, you do not go out and hire the firm. Your lender orders it, and which firm gets the work is your lender's call, the same as the business valuation, which the SOP separately requires to be "requested by and prepared for the Lender." If your lender asks you to suggest a name, the engagement is still your lender's. Lenders typically pass the cost to the borrower, and the SOP sets no fee schedule. Published QoE prices for small-business acquisitions run about $16,500 to $40,000+ for a full report and about $10,000 to $20,000 for a limited or "lite" scope, with a few providers advertising lite-tier entry points as low as $3,500 to $6,500, but that is buyer-commissioned work, not a quote for your lender's report. If your deal needs a QoE, get the price through your lender, and ask whether it is paid at closing or financed into the loan, because that changes the cash you need on day one.

Under $3 million, the lender still runs the DSCR test with its own analysis and still orders a business valuation. The SBA doesn't require a QoE there, but the lender is testing the same earnings, so the same checks still apply to your deal.

Does debt I take on count toward the $3 million? The SOP defines the price as "the price set by the purchase and sales agreement," says the threshold is "independent of total project costs, the application of Borrower equity, structuring of seller debt, or any other measure that would reduce the 7(a) loan amount," and requires the valuation to say "what is included in the sale (including any assumed debt)." It does not spell out how assumed debt counts toward the threshold, so get your lender's answer in writing before the LOI. Payments on debt you keep count in your DSCR either way. Ordinary supplier bills are usually handled through the working capital adjustment rather than the price, but the purchase agreement's wording decides it.

Equity injection and seller notes

On a first-time purchase (Initial Acquisition) you put in at least 10% of total project cost yourself and it cannot be reduced or eliminated, and a seller note counts toward that 10% only on full standby and only for half of it. Your equity injection is the money you put in yourself. For an Initial Acquisition it is at least 10% of total project cost (the purchase price plus anything else the loan pays for, such as working capital or closing costs). "For Initial Acquisitions, the required equity injection cannot be reduced or eliminated." Other deal types also start at 10%. For Business Expansions and Owner Buyouts, the lender can lower or waive it if the business will have enough cash and working capital after closing, and only if its assets are greater than its liabilities at the last fiscal year-end. An ESOP buying a controlling interest has no equity requirement.

A seller note counts toward your equity only on full standby: the seller gets no principal and no interest for the entire life of your SBA loan, and the note sits behind the SBA lender. The SOP: "Seller debt that is subordinated to the Lender and on full standby (no payments of principal or interest for the term of the 7(a) loan) may be considered as equity." Standby seller debt and similar sources, such as a minority investor under 20%, can cover at most half of the required injection. A seller note that is being paid is debt, and its payments go into your DSCR.

Two more rules apply to every deal:

• Business valuation: prepared for the lender by an accredited appraiser, with the numbers behind it checked "against the seller's IRS transcripts." Pay more than the valuation, and you cover the difference with equity.
• Personal guaranties: you guarantee the loan in full, and a seller who keeps less than 20% still owes a full guaranty for at least two years past final disbursement.

What to do

Before the LOI

1. Get three years of business tax returns, plus this year's financials to date. The returns are the document the lender trusts most, and the valuation gets checked against the seller's IRS transcripts.
2. Spread the returns yourself, line by line, and build your own EBITDA from the tax data, not the broker's summary. The gap between the two is where your questions start.
3. Project a QoE number with the adjustments above, owner pay first, and run it through the DSCR math at your lender's rate. If it doesn't support the loan you need, you know before you have spent anything.
4. Talk to your lender early about the DSCR your numbers support, the valuation, and, if you are near $3 million, the QoE timeline and cost.

Right after the LOI

1. Ask for 24 months of bank statements for every business account, including any personal account the business deposits into, along with the general ledger.
2. Tie both sides of the bank activity to the books and returns: deposits to reported sales, payments to recorded expenses and debt.
3. Rerun your QoE projection and DSCR with what the documents show, and take any gap to your lender now, while structure can still change.

Rule summary, with the SBA text

For your lender conversation. Every quote is from SOP 50 10 8.1, Appendix 15.

How Probity can help

Probity's free diligence checklist lists the documents to request before and after the LOI. Its SDE Recast spreads the seller's tax returns line by line into the earnings figure described above, and the sample spread shows a page of that output on a fictional deal, no account needed.

A note on what this is not

This guide explains what the SBA's own rule says. It is general information, not legal, tax or lending advice, and nothing here is a valuation opinion on any business. Every deal's facts differ; talk to your lender, your CPA and your attorney before you rely on any of this for a specific transaction.

Sources

• SBA SOP 50 10 8.1, effective October 1, 2026 (full text; Appendix 15, 7(a) Changes of Ownership): https://legacy.sba.gov/sites/default/files/2026-08/SOP%2050%2010%208.1%20effective%2010.1.2026_0.docx (accessed 2026-09-16)
• SBA Information Notice 5000-880695, Issuance of SOP 50 10 8.1 (effective date and scope): https://www.sba.gov/sites/default/files/2026-08/SBA%20Information%20Notice%205000-880695%20-%20Issuance%20of%20SOP%2050%2010%208.1.pdf (accessed 2026-09-16)
• SBA SOP 50 10 document index: https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs (accessed 2026-09-16)
• QoE pricing: Rapid Diligence (https://rapiddiligence.com, accessed 2026-09-17), Guardian Due Diligence (https://guardianduediligence.com/services, accessed 2026-09-17), System Six Bookkeeping (https://systemsix.com, published 2026-09-07), Midwest CPA (https://midwest.cpa/pricing, accessed 2026-09-17)