2026 Changes to SOP 50-10 Will Take Effect in October

September 11, 2026

What is SOP 50-10?

Small Business Administration (SBA) Standard Operating Procedure (SOP) 50-10 memorializes the SBA’s loan origination policies and procedures governing the 7(a) and 504 loan programs. SOP 50-10 is a living document that is revised when the SBA issues new guidance and requirements. Version 8.1 of SOP 50-1 will be effective on October 1, 2026. A noteworthy revision in version 8.1 is clearer guidance on lending with respect to change of ownership transactions, which has grown to be among the largest categories of 7(a) loan lending. Appendix 15 of Version 8.1 explicitly describes the new changes.

Historically, the SBA has required an independent business appraisal as part of any loan application for a change of ownership transaction. Effective October 1, 2026, for any 7(a) loan associated with a business expansion or a change of ownership, where the purchase price is greater than or equal to $3 million, the lender must also obtain a Quality of Earnings (QoE) report in addition to an independent business valuation.

Quality of Earnings

QoE as we understand it today traces its roots to academic literature focused on the distinction between reported accounting income and sustainable earnings and cash flow. However, the concept of quality of earnings gained most of its prevalence during the growth of private equity (PE) and leveraged buyouts in the 1980s and 1990s. A QoE was used by PE firms and their consultants as a tool to determine a target’s normalized and sustainable earnings before interest, income taxes, depreciation and amortization (EBITDA). Today, the concept of a QoE is taught throughout business schools.

The SBA requires that the QoE be prepared for the benefit of the lender and cannot be prepared by the buyer or the seller. Here are the specific SBA QoE reporting requirements:

• The QoE must reconcile the business’s accountant financial statements, tax returns, internal financial statements, and IRS transcript data to produce a normalized adjusted earnings figure that reflects recurring, arm’s-length operations.
• The QoE must include a proof of cash that reconstructs cash receipt and disbursement data activity back to income tax returns and financial statements for each period under review. The review period must include both the trailing twelve months (TTM) and the last two fiscal years.
• The QoE must identify and document all add-backs and adjustments to the seller’s reported earnings, including non-recurring revenue or expenses, above or below market owner compensation, related party transactions, deferred maintenance, and accounting methodology differences between cash-basis and accrual basis reporting.
• The QoE must assess the quality and sustainability of the business’ revenue base, including customer concentration, risk, contract continuity, and the likelihood that existing margins will be maintained post-sale.

Moving forward, the SBA will require the lender to use the earnings derived from the QoE in the Debt Service Coverage determination and retain the QoE report in the credit file.

How Brisbane Can Help

Brisbane Consulting Group, LLC, a wholly owned subsidiary of Lumsden McCormick, LLP is a leading provider of business valuation and transaction advisory services (TAS). Its TAS team has experience preparing buy-side and sell-side QoE reports for PE firms, independent sponsors and other end-users.

Contact William (Bill) Allen, CPA/ABV, CFE to discuss how Brisbane can help meet your SBA QoE requirements.