Quality of Earnings has officially entered the SBA lending conversation. With SOP 50 10 8.1 now effective, Quality of Earnings—or QoE—has become an important component of financial due diligence for qualifying SBA acquisition transactions.

But what exactly is a Quality of Earnings analysis? At its core, a QoE asks a question that financial statements alone cannot always answer: how much of the company’s reported earnings are actually recurring, supportable, and likely to continue after the transaction?

Answering that question requires looking beyond the bottom line. A meaningful QoE examines the relationship between tax returns, financial statements, internal accounting records, bank activity, seller adjustments, owner compensation, nonrecurring expenses, revenue patterns, and the other factors that influence sustainable earnings.

For lenders, the objective is not simply to verify that the numbers add up. It is to understand the quality of the earnings behind the repayment analysis.

Over the next several posts, we’ll explore what SBA lenders should know about Quality of Earnings, Cash Proof, add-backs, normalization, and the relationship between QoE and business valuation.

Experience Matters Most.