What the SOP Leaves Out, and SBA Said Anyway

SOP 50 10 8.1 runs to 149,413 words. The paragraph that decides whether your deal needs a quality of earnings report is three sentences long, and it does not answer the question most buyers are actually asking.

On 26 August, SBA’s Office of Capital Access spent an hour walking lenders through Appendix 15, the section that governs every 7(a) change of ownership from 1 October. The presenter mentioned that almost five thousand people were on the call.

He said three things in that hour that are not in the rulebook. One of them decides whether a report you have already paid for is worth anything to your bank.

A quality of earnings report is not an audit. It is a short, independent read of whether the earnings a seller reports are real and repeatable, built by tying the books to the tax returns and to what actually landed in the bank. From 1 October, on deals of a certain size, your lender has to have one.

So take the written rule first, then the places it stops, then what SBA added out loud.

Your loan number decides which rulebook

SOP 50 10 8.1 replaces 50 10 8 and its header carries one date: effective 1 October 2026. The rule follows the SBA loan number, not the application date and not the letter of intent.

That distinction is doing more work than it looks like it is. A file you submit on 25 September that receives its number on 2 October is underwritten under the new appendix. Every deal signing an LOI this month is on the wrong side of the line unless it funds unusually fast.

If you are working a deal now, assume 8.1. It is the cheaper assumption to be wrong about.

What the text requires, category by category

Appendix 15 does something the old SOP did not. It sorts every change of ownership into four boxes, and then makes almost every other rule depend on which box you are in.

“Change of ownership transactions fall into four categories: Initial Acquisition, Business Expansion, Owner Buyout (Existing and Partial Change), and ESOP and Cooperative.”

The category is not something you elect. Initial Acquisition is the default, and the burden runs the other way:

“Initial Acquisition is the default category for 7(a) changes of ownership. For a change of ownership transaction to qualify as a Business Expansion, Owner Buyout, or ESOP & Cooperative, the Lender must document how the Applicant satisfies the requirement in their credit memorandum.”

SBA said the same thing on the call in plainer words: “You begin with initial acquisition. You move into the other categories based on the nature of that transaction.”

Four things fork off that decision. Whether you need a quality of earnings report at all. The coverage floor you are measured against. Whether the ten percent down payment can be reduced. And one qualifier per category, which is where deals fall back into the default box.

One measurement note before the table, because it decides who is even in scope. The $3M is the business purchase price: owner-occupied real estate comes out first at its appraised value, and the test runs before your equity and any seller note go in. A $3.6M deal carrying a $900,000 building is a $2.7M business and the mandate does not attach. A $3.4M business bought with $1M down is still a $3.4M deal. Files land on the wrong side of that line more often than people expect.

Transaction type	What underwriting requires	The qualifier that trips people
Initial Acquisition	QoE required at $3M and up. Coverage floor 1.25x. Equity 10%, and it cannot be reduced.	The default category. Any deal that fails another category’s test lands here.
Business Expansion	QoE required at $3M and up. Coverage floor 1.15x. Equity 10%, reducible or removable on liquidity, provided net worth is not negative at the last fiscal year-end.	Two full fiscal years under current ownership, and the target in the same four-digit NAICS Industry Group.
Owner Buyout	No QoE required. Coverage floor 1.25x. Equity 10%, on the same reduction terms as a Business Expansion.	A buyer not already employed there must stay under half the equity and must not become the largest shareholder, counting interests held through entities.
ESOP and cooperative	No QoE required. Coverage floor 1.25x. Equity 10%, and no injection at all where the plan or cooperative buys 51% or more.	The plan, trust or cooperative has to acquire a controlling interest.

Two rows in that table are where the surprises live.

Business Expansion is harder to qualify for than it reads. Two full fiscal years under current ownership, not twenty-four months, and the target has to sit in the same four-digit NAICS Industry Group. SBA was blunt about who that rule is aimed at: a buyer who acquires in January, again in July and again in December is not running three expansions. Those later deals are initial acquisitions wearing a different label, and they carry the 1.25 floor and the unwaivable ten percent.

Owner Buyout has a shareholder test that catches partial deals. Someone not currently employed by the business may acquire less than half the equity, and may not become the largest direct or indirect shareholder. Interests held through a holding company, a trust or a partnership are aggregated in. Fail that and the SOP is explicit: the transaction “must be processed as Initial Acquisition.” Which means a quality of earnings report if the price clears $3M, and a down payment nobody can waive.

One number in the table looks worse than it is. The coverage floor on an initial acquisition moved from 1.15 to 1.25, and SBA’s own view of that is worth knowing: “Frankly, most lenders are already above that point.” The floor was raised to match what credit teams were doing anyway.

Two more items that do not fit a table. A business valuation is required on all four categories, by one of five named accreditations, prepared for the lender. And 7(a) Small cannot be used for a change of ownership at all, which quietly removes a route some buyers were counting on.

Three places the quality of earnings rule stops

The whole requirement runs to about 365 words, and it asks for four things. The lender obtains the report on Initial Acquisitions and Business Expansions at a business purchase price of $3M or more. The report must be independent and conducted for the lender’s benefit. It “may not be prepared by or for the borrower or seller.” And it must carry a cash proof over the trailing twelve months and the last two fiscal years.

Then it stops, and it stops in three places that matter.

It does not describe any route for a report you commissioned. The prohibition is stated and nothing follows it. Read the appendix on its own and a buy-side report is simply outside the file, however good the work was.

It does not define independent. The report must be performed by “an independent, experienced financial professional.” That is the whole standard. Now set it against the business valuation two paragraphs earlier. That one names five accreditations. It requires the individual to be independent of the loan production function. It bars anyone carrying “the appearance of a conflict of interest.” Same appendix, same page, and one paragraph is specific while the other is not.

It does not say how much testing is enough. The SOP lists what the report must reconcile: accountant-prepared statements, tax returns, internal statements and IRS transcript data, into one adjusted earnings figure. It requires the cash proof. It says the report must assess customer concentration and contract continuity. It never says what depth of evidence satisfies any of that, which is why two firms can look at the same file and quote thousands apart. What actually moves that number is a separate piece: what a quality of earnings report costs.

What SBA said out loud

The training session was the second of three that week and it sits on SBA’s own channel, linked from the lender training page. The quotations below are his words with the stumbles and false starts taken out, and nothing else changed.

On who engages the work, SBA was firm, and the reasoning is about the number of interested parties rather than about report quality:

“This is not a box checking exercise. It needs to be engaged early. It is engaged by the lender.”

Then, unprompted, the carve-out that is not written down anywhere:

Set that against the appendix and the two do not say the same thing. The text prohibits a report prepared for the borrower. SBA described a route by which one reaches the file anyway, through a vendor the lender approves, carried across by reliance letter. The SOP uses the term reliance letter eleven times and every one of them concerns environmental reports under a different appendix.

Then the independence standard, which cuts the other way and cuts harder:

“It cannot be affiliated in any way with any advisory firm on either buy side or sell side or any agent involved. And I mean that’s not just the division handling the transaction. It is any affiliation whatsoever. It has to be truly independent.”

The written rule asks who the report was prepared for. The spoken rule asks who the preparer is connected to at all, and it does not accept a wall between divisions as an answer. That is a real constraint on the large firms who advise both sides of the market, and it is worth being honest that it constrains us too. LIMESTONE cannot take the lender’s seat on a deal where we advise either party, and we would not want the report if we could.

On scope, SBA gave a description and then deliberately left the ceiling open:

“I would describe it as having somewhat of a medium scope focus, the cash proof probably being the one item in here. There’s definitely more work within a QoE that can be performed and I’ll leave it to the QoE providers to comment on that.”

My read, and I will own it as a read: that is a floor. Two fiscal years plus a trailing twelve, reconciling the income statement to what actually landed in the bank, is enough to underwrite a loan against. It is not enough to buy a company on. A lender wants to know the earnings figure is real. You want to know which customer keeps you awake and whether the owner’s relationships walk out the door with him, and the mandated scope does not reach either question. That gap is why LIMESTONE scopes a buy-side report differently from a lender-engaged one, even on the same company.

One more piece of the session that saves buyers money and almost nobody has picked up: the fee is not a sunk cost. “Any money spent related to the QoE, that is an out-of-pocket expense and it can count toward the applicant’s equity.” The SOP agrees. On a deal requiring $300,000 down, a $15,000 report is $15,000 you were putting in anyway.

Why the two do not match yet

Because SBA said so. The same answer that opened the route closed with a commitment: “There’s some flexibility that we’ll be adding and clarifying in the tech update.”

Until that publishes, there is more than one reading in circulation, and the people holding them are not careless. The appendix supports one. The training session endorsed another the appendix does not describe. A credit team working only from the written document is entitled to say no, and some will.

Which makes the practical position narrower than either extreme. Your report is not automatically dead and it is not automatically accepted. It reaches the file only if your lender is willing to put it through a vendor they approve. That question is free to ask and expensive to skip.

Current as of 30 August 2026. We will update this page as SBA publishes the technical update or any further notice, and we will date the change rather than quietly editing it.

What we would do between now and October

Five things, in order, and the first two cost nothing.

Ask your lender which category they will code the deal as. It is an entry in the SBA Loan System and it has to be justified in the credit memorandum, so there is a right answer and someone has to write it down. It sets your coverage floor and your down payment.

Ask whether they keep an approved vendor list, and whether they will take a review-and-reliance route on a report you already hold. Two questions, one email. If the answer is no, you know your budget five weeks early instead of five days late.

If you already have a report, do not commission a second one before you have asked. This is the most common way to spend $15,000 you did not need to spend.

Budget the fee against equity rather than against overhead. It counts toward the injection, alongside the valuation.

Assume the engagement letter has to be signed before your loan number issues. Under delegated authority the reports can finish after the number and before closing, so long as they are in process. The engagement itself cannot wait. The appendix requires that the vendor “must have been retained, and an engagement letter must be in place” when the number is issued. So choosing the provider sits on the closing critical path. That is not where most buyers have it.

Questions we hear

My application is already in. Am I under the old rules or the new ones?
Whichever rulebook is in force when your SBA loan number issues. Not when you applied, not when you signed the LOI. If your number lands on or after 1 October you are under 8.1, and there is no grandfathering for a file that has been sitting in underwriting.

I already own a company and I’m buying a second one. Is that an expansion?
Only if your existing business has operated for two full fiscal years under your ownership and the target sits in the same four-digit NAICS Industry Group. Two full fiscal years, not twenty-four months, which are different things if you bought in June. Miss either test and it is an initial acquisition: 1.25 coverage, ten percent down that cannot be reduced, and a quality of earnings report if the business price clears $3M.

SBA said one thing on the call and the SOP says another. Which does my bank follow?
Your bank. The SOP is the floor and every lender builds an overlay on top of it, and on this particular question a conservative credit team has the text on its side until the technical update publishes. Ask them directly rather than reasoning from the rule. It is the only answer that binds.

What happens if the report comes back below the price I agreed to?
The loan shrinks and the difference lands on you. The appendix is direct about it: if the coverage does not support the valuation and the proposed debt structure, “the loan amount must be reduced accordingly,” and the gap has to be filled with additional equity. Where that extra money comes from a limited source, it goes on full standby for the term. So a low number does not only cost you purchase price. It can lock up cash you were planning to operate with.

Working out where your deal lands? Send us the shape of it: purchase price, whether real estate is in the transaction, whether you already own an operating company, and whether anyone buying in works there today. LIMESTONE will tell you which category it falls in, whether the report is required, and which coverage floor you are being measured against. Fifteen minutes, no charge, and nothing to sign. If you would rather read first, a full sample report is on the quality of earnings page with no form and no email required.

Two companion pieces go deeper than this one does. On whose report counts and why the independence clause catches people, read who orders the QoE on an SBA deal. On what actually lands in front of a credit committee, read what a lender needs to see before they will fund.

Ryan Anoskey is a CPA and a partner at LIMESTONE Strategic Partners. He has run more than 100 quality of earnings engagements, buy-side and sell-side, across manufacturing, healthcare, contracting and multi-site roll-ups.

Sources: SBA SOP 50 10 8.1, Appendix 15, 7(a) Changes of Ownership (issued 14 August 2026, effective 1 October 2026), quoted from the published document; SBA Office of Capital Access, “SOP 50 10 8.1 Overview: Appendix 15, Changes of Ownership Transactions,” on-demand lender training recorded 26 August 2026, transcribed in full by LIMESTONE. Every rule statement in this article was checked against the SOP text rather than against secondary summaries.