If the asking price is $3 million or more, a lender-ordered Quality of Earnings is no longer optional

If your business purchase price is $3 million or more, and the buyer needs an SBA-backed loan for an initial acquisition or a business expansion, the lender will need a Quality of Earnings report. A valuation alone is not enough, and a QoE the buyer already paid for only counts if it comes with a reliance letter to the lender or a second review by a different firm. A report the seller commissioned does not count.

What the SOP actually requires

For Initial Acquisition and Business Expansion files at or above that price, the lender must obtain a Quality of Earnings report in addition to the business valuation. The report must be conducted for the benefit of the lender. A QoE already prepared for the buyer can be used with a reliance letter or a secondary review by a different firm, but a QoE prepared for the seller does not replace it.

The report also has to include a cash proof. That means bank activity reconciled to the income statement and tax returns on a trailing-twelve-month basis and for the last two fiscal years. The lender must use the QoE's normalized earnings in the debt service coverage calculation and keep the report in the loan file.

Coverage moved with the same SOP. For initial acquisitions, the framework generally requires about 1.25x debt service coverage on historical or adjusted earnings. Projections do not clear that test. If the QoE number does not support the price and the proposed debt, the loan amount gets cut.

Owner buyouts and ESOP or cooperative structures sit in different boxes under Appendix 15. Do not assume every change of ownership at $3 million automatically needs the same QoE. Ask the lender which box you are in before you budget diligence.

What that means if you might sell

If you are pricing at or above $3 million of business value, plan for lender diligence that looks more like institutional process. Clean books, filed returns, and bank statements that match the P&L are no longer a nice-to-have for the buyer's comfort. They are what the QoE will test.

Do not coach a list price under $3 million to dodge the rule. The threshold is business purchase price, not a marketing trick. A file that only works because the ask sits at $2.9 million is still a file a lender has to underwrite on earnings that hold up.

Start early. QoE work needs bank statements, tax returns, and internal financials. Buyers under LOI should ask, in writing, whether the lender will order a QoE, who pays for it, and which earnings figure will go into coverage. Sellers should know the answer before they pick a list date that assumes a six-week close.

This is separate from the question of which SOP governs the file. SBA's September 25 notice says SOP 50 10 8.1 applies to applications SBA received on or after October 1, 2026, and applications submitted through September 30 stay under SOP 50 10 8.

Next step

Score financial clarity before you list. If the books only make sense to your CPA, fix that first. A confidential valuation is still the place to see whether a $3 million-plus ask has a real path to a lender-funded close.

We work sell-side on Main Street and lower-middle-market companies valued up to $20mm, from Washington and Tennessee, selling nationwide. We run every file from valuation to closing. 86% of our engagements close, against about half industry-wide (IBBA/M&A Source Market Pulse, 2012-2022). If you want a read on whether your price sits inside a fundable structure under SOP 50 10 8.1, start with a valuation. We will tell you whether the path to close is real.