Effective October 1, 2026, SOP 50 10 8.1 introduced a QoE requirement for qualifying SBA 7(a) acquisition and business expansion transactions with a purchase price of $3 million or more. For these transactions, the report must be prepared for the lender’s benefit by an independent, experienced financial professional. However, the SOP does not require a specific license or professional credential. It also does not provide a list of approved Quality of Earnings providers. As a result, lenders must evaluate each SBA QoE provider based on independence, experience, and ability to complete the report. In this article, we discuss the requirements needed to prepare an SBA Quality of Earnings report. Understanding these requirements can help lenders prepare for these engagements and identify a qualified QoE provider.
Peak Business Valuation specializes in providing business valuations and Quality of Earnings reports for SBA requirements. We work closely with business owners and lenders to deliver QoE reports compliant with the SBA. If you are seeking an SBA Quality of Earnings provider, contact Peak! Schedule a free consultation with Peak today.
Does an SBA QoE Provider Need to Be a CPA?
The Small Business Administration (SBA) does not require a QoE provider to be a CPA. Instead, SOP 50 10 8.1 requires an “independent, experienced financial professional.” A CPA license can support a provider’s qualifications. However, the credential alone does not establish QoE experience. The same applies to credentials like ABV, ASA, or CVA.
Instead, lenders should focus on the provider’s relevant experience. This includes financial reconciliation, Cash Proof, add-back testing, and revenue analysis. Experience with lender-directed financial due diligence also matters. Simply put, the provider must be able to perform the required QoE procedures. Professional credentials can support that work, but they do not replace experience.
What Does “Independent” Mean?
Independence is an important part of the SBA QoE requirement. When a provider is going to prepare an SBA Quality of Earnings report, they should evaluate financial records objectively. This means that the SBA QoE provider does not have a financial interest in the transaction’s outcome. Objectivity excludes incentives tied to the purchase price, financing, or closing. Therefore, a key aspect of independence in this context is that the SBA QoE analyst prepares the report for the lender’s benefit. As such, a buyer’s or seller’s existing QoE report may not satisfy the SBA’s requirements.
What Experience Should an SBA QoE Provider Have?
An SBA QoE provider should have hands-on experience performing financial due diligence. Reviewing annual tax returns alone is not enough. Instead, providers should understand financial statements, tax returns, IRS transcripts, and bank activity. The ability to reconcile these records is also essential.
An experienced SBA Quality of Earnings provider should be able to:
- Perform Cash Proof for the required periods.
- Identify and support add-backs and negative adjustments.
- Analyze owner compensation and replacement labor.
- Review related-party transactions and market adjustments.
- Evaluate customer concentration, pricing, and margins.
- Explain how adjusted earnings affect debt service coverage.
Why Does Cash Proof Experience Matter for an SBA Quality of Earnings Report?
Adequate Cash Proof experience is necessary because it requires more than reviewing financial statements. The SBA QoE provider must identify relevant accounts and reconcile deposits. They must also remove non-revenue items and explain material differences. Please note that a professional with financial statement experience may still lack Cash Proof experience. Lenders should confirm that the provider understands these bank-level reconciliation procedures.
For example, $4 million in revenue may produce $4.4 million in deposits. The difference could include transfers, loans, owner contributions, or sales tax. Each material difference needs support. A credible Quality of Earnings provider must have actual Cash Proof experience to account for each deposit.
Are you seeking a reliable SBA QoE provider? If so, consider Peak Business Valuation. As an independent professional, Peak often provides SBA-compliant Quality of Earnings reports for lenders and financing professionals. Schedule a free consultation with Peak today to learn more.
Can a Business Appraiser Prepare the SBA Quality of Earnings Report?
In some cases, a business appraiser does have the potential to prepare a QoE report. However, a valuation credential does not automatically establish QoE experience. Lenders should review the provider’s experience with Cash Proof and financial due diligence. In addition, while one firm can handle both services, the engagements must remain separate. For instance, a business valuation calculates business value, while a Quality of Earnings report evaluates earnings for underwriting.
Can the Seller’s Accountant Prepare the Lender’s QoE?
Whether a seller’s accountant can prepare the lender’s QoE analysis ultimately depends on the circumstances and the lender’s determination. An accountant who prepared the company’s records may face independence concerns. The key issue is whether they can meet the lender’s independence requirements. To avoid unnecessary delays, lenders should address the QoE provider’s eligibility before engagement.
What Should Lenders Ask Before Selecting a Provider?
To ensure an SBA Quality of Earnings provider meets the SBA’s qualifications, lenders should evaluate the individual performing the work. The firm’s name alone does not establish experience. Before selecting a provider, lenders may ask:
- How many comparable QoE assignments have you completed?
- How do you perform Cash Proof?
- How do you handle unsupported add-backs?
- How do you test customer-level revenue?
- Do you have SBA acquisition experience?
- Will the report cover the required periods?
- How are scope changes handled?
The provider should be able to clearly explain their procedures. In turn, lenders should understand which records and transactions are tested. Finally, both parties must understand what the final report will address to meet all expectations.
What Should the Engagement Letter of an SBA Quality of Earnings Report Cover?
Next, the engagement letter should clearly define the lender’s engagement. In it, the lender identifies themselves as the client in the transaction. An engagement letter also explains the transaction, reporting periods, procedures, and intended use. A letter of engagement must also address information access, timing, fees, and limitations. An outline of the financial statement review, Cash Proof, add-back testing, and revenue analysis is also included.
Conclusion
Choosing an SBA Quality of Earnings provider requires more than reviewing professional credentials. Lenders should focus on independence, relevant experience, and required procedures. The right provider helps lenders better understand normalized earnings. They can also support a more informed underwriting process.
If you need an independent SBA Quality of Earnings provider, Peak Business Valuation can help. We regularly provide SBA QoE reports across the United States. Schedule a free consultation with Peak today to get started!
