September 22, 2026
By David R. Natan, CPA, MST, CVA
Beginning October 1, 2026, certain SBA-financed business acquisitions with purchase prices of $3 million or more will require an independent Quality of Earnings (QoE) analysis as part of the lender’s underwriting process. The requirement is separate from the traditional business valuation and is intended to provide lenders with greater insight into the sustainability and reliability of a company’s earnings and cash flow.
While QoE analyses have long been common in larger private equity and middle-market transactions, this change brings a similar level of financial scrutiny to many lower middle-market acquisitions. Historically, buyers and lenders often relied primarily on financial statements, tax returns, and valuation reports when evaluating SBA-backed transactions.
Common areas reviewed during a Quality of Earnings analysis may include:
- EBITDA and SDE proof
- Monthly and annual cash proof
- Owner add-backs and discretionary expenses
- Non-recurring revenue and expenses
- Customer and vendor concentration risks
- Working capital trends
- Search for unrecorded liabilities
- Revenue recognition and gross profit analysis
- Related-party transactions and below-market arrangements
- Reconciliation of internal financial statements and tax returns
For business owners considering a future sale, the new requirement reinforces the importance of maintaining accurate financial records and ensuring that any earnings adjustments are reasonable, supportable, and well documented. For buyers and lenders, a QoE can provide a clearer picture of recurring earnings, cash flow, and overall financial performance.
As financial due diligence becomes an increasingly important part of the SBA acquisition process, companies with strong accounting practices and reliable financial reporting will likely be better positioned to navigate underwriting efficiently and minimize surprises throughout the transaction. Ultimately, Quality of Earnings analyses are becoming an important tool, not only for lenders and buyers, but also for business owners seeking to maximize value and prepare for a successful sale.
Newburg CPA’s Due Diligence and Transaction Advisory team regularly assists business owners with Quality of Earnings analyses, financial due diligence, and transaction advisory services. To learn more, visit our Expert Due Diligence Services | Accounting | Newburg | CPA or Transaction Advisory Services | Boston CPA Firm Newburg pages.