Ed WeeksFounder & M&A Advisor, Weeks Consulting Group · Founder & M&A Advisor | Lower Middle Market at Weeks Consulting Group

SBA Quality of Earnings Reports: What Business Sellers Must Know #shorts

14 Oct 2026 · 1 min

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1:09

The speaker explains the new SBA rule effective October 1 that requires lenders financing a business purchase of $3 million or more to obtain an independent Quality of Earnings (QoE) report. A seller‑commissioned report does not satisfy the rule, and the lender must base its loan sizing on the earnings supported by the independent report, applying a stricter 1.25 × coverage ratio. The presenter advises sellers to anticipate the report regardless of whether they commission one, recommending they order a sell‑side QoE about six months before they plan to market the business so the data remains fresh. For transactions above $10 million, a sell‑side report is especially advisable, and sellers should test GAAP‑adjusted earnings against tax returns when there is a large discrepancy. If a sale is several years away, the speaker suggests instituting monthly close processes and maintaining clean documentation now, noting that obtaining a QoE does not obligate the seller to sell but provides valuable outsider insight into earnings.

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Since October 1st, SBA lenders must order their own independent Quality of Earnings report when the business purchase price is $3 million or more. A report you commission as the seller doesn't satisfy that rule. And, the lender has to use the earnings that report supports when it sizes the loan— now at a stricter 1.25 times coverage. So if your likely buyer is using SBA money, a Quality of Earnings report is coming whether you prepare or not. The choice is whether you see the findings first. When to start? The same provider suggested about 6 months before you're ready to go to market. Earlier, and the numbers go stale and have to be rolled forward. Later, and the report isn't ready when buyers want it. So here's what I'd do. If you're above $10 million, plan for a sell-side report. If your adjusted earnings are well above your tax return, test the GAAP. If your buyer is likely using SBA financing, See your findings before their lender does. And if a sale is a few years out, start with monthly closes and clean documentation now. None of that commits you to selling. Knowing what your earnings look like to an outsider is useful whatever you decide.