When does an SBA acquisition need a quality of earnings report?
Short answer
When the Purchase Price is $3,000,000 or more on an Initial Acquisition or Business Expansion. Owner Buyouts, employee stock ownership plan (ESOP) and Cooperative deals, and owner-occupied Special Purpose Property purchases are exempt. Source: SOP 50 10 8.1, App. 15, Para. C.1.b.
You need one on an Initial Acquisition or Business Expansion priced at $3,000,000 or more. It is required on top of the business valuation (SOP 50 10 8.1, Appendix 15, Para. C.1.b). The test uses the price before buyer equity, seller debt or other financing. Owner-occupied real estate is excluded from that price (Para. A).
Who can prepare it
An independent, experienced financial professional must prepare it for the lender's benefit. It must not be prepared by or for the seller. If you commissioned your own report, one of the lender's approved vendors can review it. The lender cannot rely on another party's report without that review. SBA's September 25, 2026 notice also lists a reliance letter, so ask your lender which it accepts.
What it must contain
- A reconciliation of financial statements, tax returns, internal statements and IRS transcripts into normalized earnings.
- A Cash Proof tying bank statements to the income statement and tax return, for the trailing 12 months and last two fiscal years.
- All add-backs and adjustments, including owner pay, non-recurring items and related-party transactions.
- An assessment of revenue quality, including customer concentration.
What the lender does with it
The lender must use the report's earnings to test debt service coverageCash available for loan payments, divided by those payments. Above 1 means the cash covers them. Full definition. If coverage does not support the valuation and debt, the loan must be reduced.
Timing
Non-delegated applications submit the report with the package. Under Preferred Lender Program (PLP) authority, it must be formally engaged when the loan number is issued (Para. D).
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