What changes in SBA loan rules on October 1, 2026?

SOP 50 10 8.1 takes effect. Business expansion and initial acquisition transactions priced at $3 million or more require an independent quality of earnings report, including a cash proof performed on both a trailing twelve-month basis and the last two fiscal years. The report must reconcile the accountant-prepared statements, the tax return, the internal books and IRS transcript data into one adjusted earnings figure, it may not be prepared by or for the seller, and where it is required the lender must calculate debt service coverage from its findings and reduce the loan if coverage does not support the price. Owner buyout and ESOP or cooperative transactions are exempt from the quality of earnings requirement, but with an anti-avoidance test: on an owner buyout, anyone not employed by the business for at least 24 months may take less than 50 percent and may not become the largest direct or indirect shareholder, and a transaction failing that test is processed under the Initial Acquisition credit standards, quality of earnings included.

Why does the SBA now require verified earnings?

Because a small company's own documents routinely disagree with each other. The bookkeeping file, the tax return and the owner's model are prepared for three different purposes and produce three different earnings figures for the same year. A lender underwriting to an unexamined number is underwriting to whichever document the seller chose to hand over.

How much does a quality of earnings report cost?

A third-party quality of earnings engagement is not cheap and is not fast, and a conventional business valuation still takes around six weeks. On a $10 million transaction that expense is proportionate. On a $2 million transaction, where a large share of the market sits, it is close to prohibitive. The rule mandates verification without making verification cheaper, and that tension is the part nobody has solved.

Does the new rule apply to small acquisition loans?

Partly, and the detail matters. The mandatory quality of earnings report applies only at a purchase price of $3 million or more. A business valuation is still required below that, but where the purchase price is $350,000 or less the lender may perform its own valuation rather than obtaining an independent one, unless there is a close relationship between buyer and seller. 7(a) Small and SBA Express loans remain available for changes of ownership, subject to the Appendix 15 modifications, and they must meet the full debt service coverage standard.

Which SBA lenders does this affect most?

The largest 7(a) originators carry the most acquisition paper, so they absorb the most added cost per loan. The SBA approved 78,078 loans worth $37.3 billion in fiscal 2025. Expect higher underwriting labour per dollar deployed and some volume to slip as transactions reprice around the new requirements.

SBA Acquisition Financing

From October 1, the SBA stops taking the seller's word for it

Acquisitions at $3 million or more now need a quality of earnings report that reconciles four sets of books into a single earnings figure. Here is why, in one company's books.

On October 1, 2026, the Small Business Administration stops taking the seller's word for it.

SOP 50 10 8.1 takes effect at the start of the agency's new fiscal year, and it changes how acquisitions financed with a 7(a) loan get underwritten. The 7(a) program approved 78,078 loans worth $37.3 billion in fiscal 2025, and a large share of American small businesses change hands on it, so this is not a technical footnote.

What actually changes

Acquisitions at $3 million or more require an independent quality of earnings report, with a cash proof performed on both a trailing twelve-month basis and the last two fiscal years. The threshold is measured before buyer equity or seller debt, so structuring the loan down does not avoid it.
It applies to business expansions and initial acquisitions. Owner buyouts and ESOP or cooperative transactions are exempt, on the reasoning that the existing owners already know the business. There is an anti-avoidance provision, though: on an owner buyout, anyone not employed by the business for at least 24 months may take less than 50 percent and may not become the largest direct or indirect shareholder, and a deal that breaks that test "must be processed following the requirements ... for Initial Acquisition," quality of earnings included. You cannot dress an outside purchase up as a buyout to escape the report.
A third exemption that is easy to miss. A quality of earnings report "is not required for a transaction involving the acquisition of an owner-occupied Special Purpose Property, regardless of the Business Purchase Price". A special purpose property is one whose design or construction restricts its utility to the use it was built for. All other financial due diligence still applies.
The report cannot come from the seller. It must not be prepared by or for the seller, and a lender may not rely on a buyer's own report without a review by one of its approved vendors.
It must reconcile four separate records: the accountant-prepared statements, the tax return, the internal books and IRS transcript data, into one adjusted earnings figure.
Debt service coverage follows that figure, and it has to be historical. Where a quality of earnings report is required, the lender must calculate coverage from its findings and reduce the loan if the coverage does not support the price. Coverage itself "must be satisfied using either the last fiscal year-end or an average of the last two fiscal year-end statements", at 1.25 to 1 for an initial acquisition and 1.15 to 1 for a business expansion. Projections do not satisfy it, with one narrow exception for an owner-occupied special purpose property whose price is fully supported by the appraisal.
Below that threshold a business valuation is still required, and only at a purchase price of $350,000 or less may the lender value the business itself. Not even then, if buyer and seller are closely related.

Read together, those say one thing. The agency has decided that the documents a seller hands over are not, on their own, good enough to lend against.

It is worth being precise about what the rule does not do, because a lot of the early coverage of it was loose, including mine. It does not require an independent valuation on every deal at every size. And it does not remove 7(a) Small or SBA Express from change-of-ownership lending: Appendix 15 says plainly that "the use of 7(a) Small & SBA Express loans to facilitate changes of ownership are permitted but are subject to requirements outlined in this Appendix." What those loans do not get is relief from the debt service coverage standard.

Why the rule exists, in one company

The problem it is solving is not fraud. It is that a small company's own paperwork disagrees with itself, and nobody involved is lying.

Here is a worked example from a company I analyzed. One business, one fiscal year, three documents:

The QuickBooks file showed $780,000 of EBITDA.
The tax return showed $612,000.
The owner's own model showed $895,000.

The spread between the lowest and the highest is 46 percent, before anyone applies a multiple.

Each number is defensible on its own terms, which is exactly why this is hard.

The bookkeeping was never prepared for an outside reader. Categories drift, personal items sit in the company, and nobody has ever needed it to survive scrutiny because nobody outside the business has ever read it.

The tax return was prepared to minimize tax. Every discretionary expense that could legally sit inside the company did. That is the accountant doing their job correctly, and it produces the lowest of the three numbers by design.

The owner's model added back the costs the owner considers not-really-costs. Some of those add-backs are legitimate. Some are the owner's car.

One honest note on what this is and is not. This is a single worked example, not a statistic. I have not published a distribution of how far small-company documents diverge, because I do not yet have a large enough verified sample to stand behind one. Treat the 46 percent as an illustration of the mechanism, not as a market average.

What a 46 percent spread does to a loan

Run those three figures through a five times multiple and the same business is worth $3.06 million, $3.9 million or $4.48 million depending on which document the lender happened to receive. That is a seven-figure swing on a business worth a few million dollars.

It is also the difference between a loan that services and a loan that does not. Debt service coverage is a ratio, and if the numerator is wrong by 46 percent the ratio is decorative. That is precisely why, on the deals where a quality of earnings report is required, the new rule forces debt service coverage to be computed from the quality of earnings figure. Note what that figure is: the SOP has the report reconcile the seller's own records rather than discard them, so this normalizes the seller's numbers rather than replacing them.

The cost nobody has solved

The SBA has mandated verification. It has not made verification cheaper.

A conventional third-party business valuation still takes around six weeks. Add a quality of earnings engagement and a buyer can spend two months, plus a meaningful share of their equity cheque, establishing whether the business is worth what the seller says.

On a $10 million transaction that is proportionate. On a $2 million transaction it is close to prohibitive, and a large share of the market sits below $2 million. Verification is now compulsory at a price set for deals ten times larger.

That tension does not resolve itself on October 1. It just starts showing up in the loan file.

What to do about it

If you are selling, the single most useful thing you can do before going to market is make your three documents agree. Not because a buyer will admire the tidiness, but because every unexplained gap is a discount, and from October the gap now has to survive a third party who is paid to find it.

If you are buying, budget the verification into the deal from the start rather than discovering it at diligence, and price the extra six to eight weeks into your exclusivity period. A letter of intent written on the old timetable will expire in the middle of the new one.

If you are lending, the near-term cost is real and the longer-term case is credit quality. Loans underwritten to a verified earnings figure should perform better through a downturn than loans underwritten to a bookkeeping file nobody checked. Whether that trade is worth it is the thing the next cycle will answer.

Corrections, 1 and 2 October 2026. An earlier version of this page said the rule required an independent valuation on every change-of-ownership loan with no size threshold, and that streamlined processing disappeared at every size. Both were wrong. SOP 50 10 8.1 permits a lender to perform its own valuation where the Business Purchase Price is $350,000 or less, and expressly permits 7(a) Small and SBA Express for changes of ownership. Those claims came from the SOP text published in August 2026, which SBA Information Notice 5000-882227 replaced on 25 September, six days before it took effect. I have since diffed the two files and written up all five changes, with the before and after language.

A first correction on 1 October then overcorrected in the other direction, saying the rule does not stop the agency lending against projections. On change-of-ownership deals it effectively does: coverage must be satisfied off the last fiscal year-end or an average of the last two, and only an owner-occupied special purpose property fully supported by its appraisal may be underwritten on projections. The passage about projections for businesses with insufficient history is the general 7(a) rule, not the change-of-ownership rule, and citing it here was my error. The quality of earnings mandate at $3 million is as described throughout.

Go deeper

If you are buying or selling a business into this rule change and want the earnings reconciled before a lender does it for you, that is the work I do.

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Tomasz Felpel is an investor, founder, and advisor in private markets, based in New York. He publishes the Felpel Private Company Index and has priced more than 1,000 private companies.