The New SBA SOP: Four Changes Worth Paying Attention To
The latest SBA lending procedures introduce some of the most significant changes we’ve seen in years—particularly for business acquisitions.
Throughout 2026, we have done our best to provide a variety of information we hope you find useful. The Blue Owl Value Digest is a quarterly offering that reports actual, aggregated market information. In months without a Value Digest update, I’ve been trying to write about general topics that folks might find fun and interesting. You can see more of what I’ve been pondering on the website: https://blueowlvaluation.com/blog
For this monthly installment, the topic will be a bit less esoteric. The U.S. Small Business Administration has recently published a significant change to lending procedures. SOP 50 10 8.1 was published on August 14, 2026. This will go into effect on October 1, 2026. In my opinion, the requirements in the new SOP represent the most significant change to an SBA SOP in at least 20 years.
Some people follow the SOP changes much more closely than I do. I’m still digging through the new rules and making sure I understand how they apply to valuation, specifically. But there appear to be quite a few changes. Here are some that may be impactful.
1. The 10% Equity Injection Remains—with Some Important Limits
For acquisitions, there is still a 10% minimum equity injection. I’ve seen banks that require more, but for the SBA guidelines, this 10% still holds true. It appears, though, seller financing and other limited sources cannot satisfy the entire 10% injection. If I’m not mistaken, this was once true, then it wasn’t for a while, but now it will be again. Once again, the owner will not be allowed to finance 10% to facilitate a zero-down deal for a buyer.
2. Independent Valuations Will Be Required for Every Acquisition
The exception for the required external valuation under $250,000 goes away. Under the current SOP, an external, independent business valuation is required if the value of intangible assets being financed exceeds $250,000. Under the new SOP, every acquisition will require an independent valuation from a qualified source.
In my experience, many banks chose to order the valuation on the smaller deals, anyway, just to be sure. Also worth noting that an external valuation was already required for any kind of known-party transaction. If a relative or an employee of the owner were buying, the valuation was required even for smaller transactions. So we’ve seen a lot of those over the years.
3. DSCR Must Be Supported by Historical Cash Flow
Under the current and prior rules, lenders could lean heavily on projected cash flow to clear DSCR minimums. Under the new SOP, DSCR coverage must be based on historical financials. This strikes me as a very significant change.
4. Quality of Earnings Reports Come with Significant Documentation Requirements
In my view, though, the biggest change may be the requirement for Quality of Earnings reporting on deals with a purchase price (excluding real estate) of $3 million or greater. This is a brand new requirement…and it is a significant one.
As I read the SOP, the SBA has taken a much different approach than the one they took for business valuations. With business valuations, the SBA identified existing professional credentials. The SBA sort of delegated the decision-making about the specifics of reporting to the holders of the credentials. In other words, the professional standards of the credentialing organizations were paramount.
With the new Q of E reporting, the SOP appears to establish specific reporting requirements. The SBA is not just saying that a qualified professional must be hired. They are saying that a qualified professional must be hired, and that the report must contain some specific elements.
This is not exhaustive, but here are some of those elements:
- Every proposed add-back or deduction to seller-reported earnings must be identified and supported by appropriate underlying documentation. Supporting documentation may include general-ledger detail, invoices, contracts, payroll records, bank statements, or other source records. If not supported, these adjustments should not land in a DSCR calculation. For brokered deals, the bank will not simply be able to base the analysis on the financials provided by the broker.
- Owner compensation has to be analyzed based on what the owner actually does in the business. The question is not simply how much the owner was paid. The analyst has to consider what duties will need to be performed or replaced after the transaction.
- Revenue quality must be assessed, including customer concentration, contract continuity, and the likelihood that existing revenues and margins will continue following the transaction.
- A full reconciliation must be performed between tax returns, accountant-prepared statements, internal statements, and official IRS tax transcript information. This reconciliation is intended to produce a normalized earnings figure reflecting recurring operations for an arm’s-length buyer.
- A cash proof must be performed by reconstructing cash receipts and disbursements and reconciling bank statements to income statements and tax returns for the trailing twelve-month period and each of the two previous fiscal years.
At Blue Owl Valuation, we have completed well over 1,000 valuation reports for SBA acquisition loans over a period of more than a decade. The required Quality of Earnings analysis goes well beyond the scope of a typical valuation process.
In fact, having worked on valuations with a wide variety of clients for a wide variety of purposes and uses, it is my opinion that the document production alone may well be difficult and expensive for many businesses.
We have seen hundreds of businesses that may well fit into the category of a $3mm+ acquisition target. For many of those businesses, it may not be a question of whether or not they want to fulfill the requirements. They simply may not have records that are clean enough to produce the documentation easily.
This may mean that before a deal can progress, many businesses may well find themselves paying for accountants and bookkeepers to create the records necessary for the Q of E analysis to be performed. I’m not certain that there is a wide understanding of exactly what this means for a closely held business in this value range.
The difficulty level also likely goes up for banks, as the document checklists expand significantly. I have little doubt that the new requirements will add significant time to these $3 million+ acquisitions, and as we know, time is money.
Over the years, Blue Owl Valuation has done our best to combine quality with efficiency. We pass that efficiency on to our clients through reasonable pricing and quick turnaround times. Rest assured that we will continue that tradition as we move forward with the new SOP. We are working on our document request checklist and our Quality of Earnings procedures. If you have any questions at all, please reach out to me anytime. You can also reach out to Nick. We are both working on this issue daily!
We hope to have many opportunities to continue to serve your valuation needs!
Thank you!
- Will and Nick
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