New SBA Rule Means Buyers, Sellers, and Lenders Need Both a Valuation and a Quality of Earnings Report, Before the Deal Closes
Starting October 1, 2026, SBA-financed business acquisitions and expansions of $3 million or more require an independent Quality of Earnings (QoE) report, in addition to the independent business valuation SBA has long required on change-of-ownership loans over $250,000 or between related parties. If you are buying, selling, or lending on a deal in that range, both deliverables now sit in the credit file, and neither one substitutes for the other.
Why this changes your timeline. The QoE must be prepared by an independent professional engaged by the lender, not the borrower or seller, and a broker-supplied seller QoE does not qualify. It has to reconcile tax returns, internal financials, general ledger detail, and bank statement cash flow into one defensible adjusted EBITDA figure, document every add-back, and assess revenue quality: customer concentration, contract durability, margin sustainability post-sale. The lender’s minimum debt service coverage (1.25:1 on acquisitions, 1.15:1 on expansions) is calculated off that adjusted number. If the QoE doesn’t support the deal structure, the loan gets resized or the buyer needs more equity, so the earlier this work starts, the fewer surprises at closing.
Why one report can’t do both jobs. A valuation answers what the business is worth, using whatever earnings figure it’s given. A QoE tests whether that earnings figure is real and repeatable, tracing add-backs to invoices, payroll, and contracts rather than accepting a schedule at face value. Neither is an audit. Skipping the QoE and asking the valuation to carry both jobs is exactly the gap this rule is designed to close.
What SAX brings to this. Our Valuation, Forensics & Litigation practice prepares independent business valuations that satisfy SBA appraiser-qualification and reporting standards, and SAX’s Transaction Advisory Services group, led by Colin Baker, builds QoE reports the way this SOP requires: adjusted EBITDA tied to source documents, cash reconciled to bank statements on a trailing-12-month basis, and revenue quality assessed and documented, not asserted. We work directly with lenders, buyers, and their counsel to get engagement letters signed early so both deliverables are in motion at loan-number issuance, keeping the deal on schedule rather than waiting on findings.
If you have a deal in the pipeline at or near this threshold, now is the time to line up both engagements. Contact SAX’s Valuation, Forensics & Litigation practice or Colin Baker in Transaction Advisory Services (cbaker@saxadvisorygroup.com) to discuss scope, timing, and fees before your next SBA-financed acquisition or expansion moves to underwriting.