Changes to SBA SOP 50 10: A QoE Perspective
Recent changes to SOP 50 10 have imposed several new requirements on SBA financing, including mandatory Quality of Earnings reports for certain transactions.[1]
Yet the QoE mandate does not operate in isolation.
Higher debt-service coverage requirements, a non-reducible equity injection, independent valuations, and tighter limits on projections will also affect which deals qualify for financing and what a QoE must confirm for those deals to proceed.
Writing on his Substack, Caleb Basile, the owner of QoE Prep, recently addressed these changes. He identified the winners, the losers, and what the changes could mean for business buyers.
The following excerpt is taken from his article and reprinted here with his permission.[2]
The Winners
QoE providers. A mandatory QoE on any deal over $3 million turns a service that used to be optional into a compliance requirement. Now, it’s not just the savvy buyers or strict lenders that get a QoE. Even your most unqualified buyer and your least reputable brokers are going to have to up their game.
Sellers of businesses over $3 million. This category might have the biggest winners. A QoE cuts both ways, and sellers who’ve historically had to defend every addback in a negotiation now have a mechanism that validates those adjustments before a skeptical buyer ever sees the deal. Requiring a QoE also creates room to move off cash-basis tax returns and toward accrual-based financials that actually reflect how the business performs. For many owner-operated businesses, accrual-based accounting tells a much better story than what the IRS sees. In the end, when the diligence is done upfront, you get a business that’s easier to sell and easier to transition.
Brokers who can be flexible. The new SOP will require brokers to change a few things when they structure transactions. The new rule adds a category system, a DSCR floor, and a redefined equity structure. Whichever broker that can figure out how to build a deal that fits these requirements is going to close more transactions. It will likely take some finagling (another word that can’t be real), but the payoff will be worth it. Brokers are likely to start asking for larger down payments than 10% to be the deciding factor of which buyer wins the LOI.
Exit planning advisors. As the saying goes, necessity is the mother of exit planning advisors. The DSCR is now a hurdle every business has to clear before it can change hands. As a result, the work of building enterprise value, cleaning up financials, and strengthening cash flow becomes directly tied to whether that sale can even get financed. There’s an even stronger need to have the right people in your corner helping you navigate all these changes. The requirements might be so tricky that the pitch for exit planning will go from “you’ll get a better multiple” to “you’ll actually get a deal done.”
The Losers
Searchers and first-time buyers with little capital. These are for sure the biggest losers, and unlike a certain reality show that somehow ran for 18 seasons, the biggest loser does not win here. Underfinanced buyers are going to be met with a mountain of requirements now: a 1.25x debt-service coverage minimum, a 10% equity injection that can no longer be reduced or waived, an independent business valuation, and a QoE report.
Every one of those changes raises the bar for what a first-time buyer needs before a lender will even engage. The underlying business will need to be stronger, and the buyer will need more cash. The barrier to entry for ETA might move enough to completely push out starry-eyed searchers with strong theses and thin balance sheets.
Some diligence folks. It’s a bit counterintuitive, but the new rule could take away from what made diligence-minded people more special. More responsible buyers/sellers would have already been getting QoEs voluntarily, making it clear how serious they were about the deal. It’s a bit of the “And when everyone’s super, no one will be” situation. Even for providers, a QoE offering is no longer a differentiator.
Lazy brokers. Some brokers prefer to just usher deals over to banks to let them figure out how to structure the transaction. That approach was never great, of course, but it was more tolerable when the SOP had some give to it. Now, any unstructured deal is a deal that’s going to stall in underwriting as soon as it runs into the new requirements.
Strong operators looking to acquire underperforming assets. The entire thesis behind buying an underperforming asset is that a better operator can fix it. Even if the historical numbers were weak, the buyer’s proven track record used to be enough to justify the purchase. This dynamic was especially true with hotels and gas stations. Unfortunately for them, the new SOP explicitly closes that door by prohibiting projections from overcoming inadequate historical cash flow. A skilled operator with a credible turnaround plan and a mediocre set of historical financials is now only underwritable based on the business’s past, not the future projections. It’s a bummer because the changes actually punish the exact kind of buyer who would have made the acquisition work.
Future business owners who were underwriting deals off projections. Whenever a deal needs that extra oomph to get over the line, future business owners were able to get creative with different tools to secure a loan. One of these tools is a 25-year term blended with commercial real estate. For a lot of smaller acquisitions, this technique allowed buyers to stretch the amortization schedule far enough out to make a deal cash flow. Given the tighter DSCR standard with only historical cash-flow underwriting, you won’t be able to get that deal done.
What This Actually Changes
The SOP seems to reward people who base their positions on real, historical numbers and punish those who are more narrative based. Theoretically, the changes should make it so that very risky deals don’t go through anymore. The winners/losers can be found on both sides of the deal. Sellers with clean books win, but sellers with ugly financials won’t be able to rush a sale anymore. Buyers with thin capital and a good thesis might lose, while buyers with a more responsible approach will likely win. Brokers who structure deals with a QoE Prepped (see what I did there?) approach properly win, and those who don’t will lose.
Like it or not, the SBA isn’t in the business of preserving your competitive advantage. It doesn’t care about how great your plan is when you’ve got most of your capital coming from between the couch cushions. The SBA is in the business of not guaranteeing loans that default. Every change in SOP 50 10 8.1, from the QoE mandate down to the projection restriction, works to shift risk back onto the buyer at the point of purchase rather than the SBA at the point of default.
For the ETA community specifically, being on that “grindset” is less important than being well prepared. The searchers who adapt by loading up with more capital, finding smart brokers, and securing early diligence will be just fine. The ones who depend on their cold plunge routine to develop a vision plan will find themselves in a considerably less forgiving market after October 1st.
There’s also a second-order effect worth naming: this rule will change what deals get brought to market in the first place. Whenever sellers and brokers see a deal cross the $3 million threshold, they’ll start preparing books, addbacks, and accrual conversions well before a listing goes live. A few months from now, “SBA-financeable” and “QoE-Prepped” are likely to be nearly synonymous for anything above the threshold. Any business that isn’t categorized as such likely won’t sell at all.
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[1] This article addresses changes to SBA SOP 50 10 that went into effect on October 1, 2026. The SBA periodically updates SOP 50 10.
[2] Caleb wrote his article prior to a September 25, 2026, technical update. His views are unaffected by that update. But may be impacted by future updates. You can find the latest version of SBA SOP 50 10 here.