The Buyer’s Bank Is Now Checking the Books

As of October 1, 2026, the way small businesses get sold changed.

Under the SBA’s updated lending rules, when a buyer uses an SBA loan to buy a business for a purchase price of $3 million or more, the lender must now get an independent quality of earnings (QoE) review before the deal closes.

A quality of earnings review, or QoE, is a deep check of whether the profit a business reports is real and repeatable. Think of it as an audit on steroids, focused on one question: what does this business actually earn?

Three details matter:

• The bank orders it. It’s prepared for the lender, not for the seller and not for the buyer.
• The $3 million counts the full purchase price, not counting owner-occupied real estate.
• Partner buyouts and ESOPs are exempt. Most other sales to an outside buyer using SBA money are not.

Why the SBA Did This

The SBA’s explanation is that acquisition loans have grown into one of the largest parts of its 7(a) loan program, and they carry risks other loans don’t.

Underwriting on those deals had come to lean heavily on numbers supplied by the seller and the buyer, including adjusted earnings nobody independent had tested. As acquisition lending grew, so did the risk of lending against earnings that wouldn’t hold up after the sale.

So the earnings behind the loan now have to be tested by someone other than the buyer or the seller. The same update also raised the minimum cash flow cushion on most acquisition loans to 1.25 times the loan payments, and a buyer’s growth plan generally can’t make up a shortfall. Lenders are lending on last year’s real numbers.

What the Bank’s Review Has to Cover

The rule doesn’t leave the scope up to the accountant. At a minimum, the review has to include:

• The records have to tie out. The company’s financial statements, tax returns, internal books and IRS transcripts get reconciled into one adjusted earnings number.
• A proof of cash, built on a three-way match. The books, the tax returns (checked against IRS transcripts) and the bank deposits all have to agree, for the trailing 12 months and the last two fiscal years.
• Every add-back has to be documented. One-time items, owner pay above or below market, deals with related parties, deferred maintenance, and differences between cash and accrual accounting.
• Revenue quality. Customer concentration, whether contracts continue, and whether revenue and margins will hold after the sale.
• The bank lends on that number. The lender has to use the QoE earnings figure when it decides how much debt the business can support.

What That Looks Like in Practice

Say an owner agrees to sell for $4.2 million, based on $1 million of adjusted earnings at a 4.2x multiple. The bank’s accountant goes through the add-backs: a spouse’s salary for a job they stopped doing two years ago, the truck the owner drives on weekends, the “one-time” legal bill that shows up every year, a few family trips booked as client meetings.

None of it is unusual, and none of it is documented well enough to survive. Adjusted earnings come back at $820,000. At the same multiple, the business is now worth about $3.44 million. The bank lends against the lower number, the buyer can’t cover the gap, and the owner is looking at a $760,000 price cut or a seller note they never planned on.

The trail from the agreed price to the price the bank supports looks like this:

Adjusted earnings the price was built on	$1,000,000
Add-backs the bank doesn’t accept:
Spouse’s salary (no longer working in the business)	($90,000)
Personal truck	($20,000)
“One-time” legal fees that show up every year	($40,000)
Family trips booked as client meetings	($30,000)
Adjusted earnings per the bank’s QoE	$820,000
Multiple	x 4.2
Value at the bank’s number	$3,444,000
Agreed price	$4,200,000
Gap	($756,000)

Why This Hits So Many Owners

For businesses in the $3 million to $15 million range, the most likely buyer is an individual or small group using an SBA loan. Private equity gets the headlines, but at this size, SBA lenders finance a large share of the deals.

Before this rule, plenty of those deals closed on the seller’s numbers with a lighter review. Now the bank’s own accountant will look at the books before a dollar moves. If the earnings depend on add-backs the owner can’t support, the price will come down, and it will come down after the owner has already mentally spent the money.

When the Bank’s Number Doesn’t Match the LOI

When the bank’s number comes in below the one the price was built on, one of three things usually happens.

• The buyer asks for a lower price. It’s called a retrade, and it lands after the owner has signed the LOI, agreed to exclusivity and told the family what they’re walking away with.
• The deal gets restructured. Less cash at closing and more seller financing or an earn-out. The owner ends up carrying the risk the bank wouldn’t.
• The deal dies. This is the one most owners underestimate.

A broken deal costs more than the deal itself:

• Months of the owner’s time spent on diligence instead of running the business.
• Legal and accounting fees the seller pays whether the deal closes or not.
• Other buyers moved on while the business was tied up in exclusivity.
• Word gets around. Employees, customers or vendors may have picked up that something was happening.
• The problems don’t go away. The next buyer will ask why the last deal fell apart, and their bank’s accountant will find the same issues.

A business that comes back to market after a failed deal often gets treated as damaged goods. Bankers call it shopworn. The price rarely goes up from there.

What Usually Gets Cut

The same items show up again and again:

Personal expenses run through the business. Cars, phones, travel, the occasional dinner that was more family than client.

Family on the payroll. If they work in the business, fine. If they don’t, the buyer’s accountant will notice.

“One-time” costs that happen every year. Legal fees, equipment repairs, a bad-debt write-off. If it shows up three years in a row, it isn’t one-time.

Owner pay that doesn’t match the job. If the owner takes a salary well below what a replacement manager would cost, the buyer will adjust for it, and it comes out of earnings.

Cash that doesn’t match the books. If bank deposits, tax returns and the financial statements tell three different stories, it’s going to be a long conversation. The bank’s review now runs a three-way match between the books, the tax returns and IRS records, and the bank deposits, covering the last 12 months and two full years.

The One Thing to Do Now

Get the numbers checked the way the bank will check them, before a buyer ever asks.

That doesn’t mean paying for a full QoE today. Start simpler. The owner sits down with their accountant and lists everything that runs through the business that isn’t really a business cost: the family member on payroll, the personal car, the trips, the phone plans. Then they figure out what the profit would be if those costs weren’t in the business and a fair market salary were paid to whoever runs it. That number is what buyers call adjusted EBITDA, and it’s roughly what they’ll pay for.

Then ask one hard question about each item: could the owner prove it to a stranger? If the answer is no, there’s still time to clean it up, document it, or stop running it through the business, so next year’s numbers tell a cleaner story.

Owners who do this early walk into a sale knowing their real number. Owners who don’t find out from the buyer’s bank.

As always, thanks for reading.

Brett
Fenwick Partners
fenwickpartners.co