SBA 7(a) Quality of Earnings with Cash Proof
Independent, lender-directed financial due diligence to validate sustainable earnings, reconcile cash activity, and support underwriting for qualifying SBA 7(a) change-of-ownership transactions.
Request Vendor QualificationsWhat SBA 7(a) Lenders Need to Know
For applications issued an SBA loan number on or after October 1, 2026, SBA SOP 50 10 8.1 requires the lender to obtain a Quality of Earnings (QoE) report — in addition to the required Business Valuation — for Initial Acquisition and Business Expansion transactions with a Business Purchase Price of $3 million or more.
When It Applies
Initial Acquisition or Business Expansion change-of-ownership transactions with a Business Purchase Price of $3 million or more.
How the Threshold Is Measured
Purchase-and-sale-agreement price less the appraised value of owner-occupied commercial real estate, measured before buyer equity, seller debt, or other financing.
What the Lender Must Do
Obtain an independent QoE that includes Cash Proof, use its earnings in the Debt Service Coverage calculation, and retain the report in the credit file.
Owner Buyout and ESOP & Cooperative transactions are not subject to this specific QoE requirement, although other financial due diligence requirements continue to apply. The lender determines transaction classification and applicability.
Why the Analysis Matters to Underwriting
The Quality of Earnings analysis provides an independent basis for the earnings and cash activity used to evaluate repayment capacity.
Establish Supportable Earnings
Reconcile source financial information, test add-backs and adjustments, and isolate earnings attributable to recurring, arm’s-length operations.
Verify Cash Activity
Reconstruct receipts and disbursements and reconcile bank activity to reported financial and tax information.
Identify Credit Implications
Highlight findings that may affect Debt Service Coverage, the supportable loan amount, debt structure, or the need for additional equity.
SEVN Advisory presents the financial findings; the lender makes all underwriting and credit decisions.
How SEVN Advisory Can Help
SEVN Advisory performs lender-directed Quality of Earnings and Cash Proof engagements that connect reported financial results to supported earnings, cash activity, and the questions the credit team needs answered.
Core Analysis
Financial Reconciliation
Reconcile accountant-prepared and internal financial statements, tax returns, and IRS transcript data to identify and explain material differences.
Normalized Adjusted Earnings
Develop recurring, arm’s-length earnings and document all add-backs and adjustments using available source support.
Revenue Sustainability
Assess customer concentration, contract continuity, and whether existing revenue and margins appear sustainable following the transaction.
Cash Proof
Reconstruct receipts and disbursements and reconcile bank activity to reported income and tax returns across the required periods.
Required Cash Proof periods: the trailing 12 months and the last two fiscal years.
Why SBA Lenders Choose SEVN
Professionals supporting SEVN engagements include individually licensed CPAs with Quality of Earnings and transaction financial due diligence experience.
Experienced QoE Professionals
Professionals supporting SEVN have participated in 150+ Quality of Earnings engagements representing more than $7 billion in aggregate transaction value.
Lender-Directed, Conflict-Screened Scope
Scope, materiality, communication, and reporting are aligned with the lender’s requirements following a transaction-specific independence and conflict review.
Clear, Credit-Focused Findings
Transparent earnings bridges, Cash Proof results, supporting schedules, and unresolved items are presented for efficient credit review.
Experience reflects the collective professional background of participating professionals, including engagements performed in prior roles and affiliations. It does not imply that SEVN Advisory itself was engaged for every transaction.
Built Around the Lender’s Process
The engagement is established for the lender’s benefit and coordinated around the lender’s scope, timing, and communication requirements.
Confirm the Engagement
The lender reviews qualifications and independence, then approves the provider, scope, timing, and communication protocol.
Perform the Analysis
SEVN reconciles the financial record, tests adjustments and cash activity, and investigates material information gaps through the approved process.
Deliver and Support
The lender receives the report, supporting schedules, and direct follow-up for underwriting questions.
A buyer or advisor may introduce SEVN Advisory to the lender, but the required QoE may not be prepared by or for the borrower or seller.
SBA 7(a) Quality of Earnings FAQ
When is an SBA 7(a) Quality of Earnings required?
For applications issued an SBA loan number on or after October 1, 2026, the requirement applies to Initial Acquisition and Business Expansion transactions with a Business Purchase Price of $3 million or more.
How is the $3 million Business Purchase Price calculated?
It is the price stated in the purchase and sale agreement less the appraised value of owner-occupied commercial real estate included in the transaction. The threshold is measured before buyer equity, seller debt, or other financing.
What is Cash Proof, and what periods must it cover?
Cash Proof reconstructs cash receipts and disbursements by reconciling bank-statement data to the income statement and tax returns. It must cover both the trailing 12 months and the last two fiscal years.
Who engages and approves the Quality of Earnings provider?
The lender must obtain the report for its benefit. The report may not be prepared by or for the borrower or seller, although a buyer or advisor may introduce a provider to the lender for consideration.
How must the lender use the Quality of Earnings findings?
The lender must use the earnings determined by the QoE in its Debt Service Coverage calculation and retain the report in the credit file. If the resulting coverage does not support the valuation and proposed debt structure, the loan amount must be reduced; additional equity may be used to address the difference.
Is the required Business Valuation included in the QoE?
No. The QoE is required in addition to the Business Valuation. The two analyses serve different purposes and have separate provider-qualification requirements.
Are net working capital and net debt required by the SBA QoE provision?
No. They are not prescribed elements of the SBA QoE scope, although the lender may add them or other transaction-specific procedures.
Does the QoE provider have to be a CPA, and is this an audit?
The SOP requires an independent, experienced financial professional but does not require the provider to be a CPA. SEVN engagements may include individually licensed CPAs; the service is financial due diligence and not an audit or assurance engagement.
Authoritative SBA Sources
The applicable SBA SOP and lender requirements control. SBA policy information was last reviewed September 1, 2026.
- SBA SOP 50 10 8.1 — Lender and Development Company Loan Programs
- SBA Information Notice 5000-880695 — Issuance of SOP 50 10 8.1
Related Services
Discuss an SBA 7(a) Transaction
Lenders may request qualifications and discuss scope directly. Buyers and advisors may introduce SEVN Advisory to the proposed SBA lender for consideration.
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