What the report stack is
SOP 50 10 8.1 did not invent the business valuation or the going-concern appraisal. Both were already required, the first on every change of ownership and the second on any special-purpose property, and both carry forward unchanged. What 8.1 added is a third report, the lender-ordered Quality of Earnings, on Initial Acquisitions and Business Expansions where the business purchase price is $3 million or more, and a rule that its earnings figure must be the one used in the coverage test. A fourth report, the independent feasibility study, sits outside the SOP's mandatory list, under the permissive clause at 13 CFR 120.160(b), and is expected wherever repayment rests on a projection rather than a record.
The four reports answer four different questions. The valuation says what the business is worth and caps total 7(a) debt at that figure. The appraisal says how much of the value is real property, and therefore what the collateral position is and what any 504 piece can carry. The Quality of Earnings report says whether the past is real, and feeds the 1.25x historical test. The feasibility study says whether the future is viable. Each produces its own earnings figure, and the SOP assigns each figure to its own decision. On what happens when the figures disagree with each other, it is silent. Our full analysis of the three-report stack and the rest of the 8.1 rewrite is in Three Reports, One Credit File; this page is the working tool that goes with it.
Why the allocation decides the diligence
The Quality of Earnings threshold is measured net of the appraised value of owner-occupied real estate. On a hotel, a car wash, a gas station or an assisted-living community, that value is not a fact in the purchase agreement. It is the output of a going-concern appraisal that must allocate the total assets of the business among land, building, equipment and intangibles, and there are two accepted ways to do it. The approach associated with Stephen Rushmore removes business value by deducting management and franchise fees from stabilised income. The business enterprise value approach additionally deducts a return on and of the equipment and the start-up costs of the business, moving more value into intangibles and less into the real estate. In the most-cited illustration, a 221-room hotel came out at 60 per cent real property under the first method and 36 per cent under the second, on the same income and the same date. Courts have found the first method incompletely applied on particular facts; both remain in use.
Under Version 8 that choice affected the collateral position and nothing else. Under 8.1 it can decide whether a $15,000 to $50,000 report with a two-to-six-week lead is mandatory. The planner's default file shows it: at a $2.9 million allocation the business purchase price is $2.7 million and no report is required; if the other method moved 24 per cent of that real-property value into intangibles, the business purchase price becomes roughly $3.4 million and the report is required, and its earnings figure, not the seller's, drives the coverage test. Our appraisal practice states and justifies the method in every going-concern report; the planner is built so a lender can see, before ordering, whether the method matters on the file in front of them.
Three figures, one debt service
The planner asks for the three earnings figures the file will actually contain, and a fourth it will contain but may not rely on. The seller's recast is the number the deal was priced on. The diligence-adjusted figure is what survives the cash proof and the add-back review. The appraiser's stabilised net operating income is a market-participant figure after a management fee and reserves, which is why it is nearly always the lowest of the three. The sponsor's projection is the number the plan depends on. All four are divided by the same post-closing debt service, computed as Appendix 15 requires, with full-standby seller debt excluded and any other seller debt underwritten at ten years or less.
The table under the planner shows what each ratio decides. The diligence-adjusted figure governs coverage. The appraisal's figure governs value and collateral. The seller's figure governs nothing. The projection governs nothing under Appendix 15 either, which is the point: if the file clears the floor only on that fourth line, the SOP has just told you it is not an acquisition file. It is a feasibility file, and the report that tests it is the study, not the Quality of Earnings.
The reconciliation nobody is required to write
The last two panels test the reports against each other. The debt-cap panel checks total 7(a) and non-standby seller debt against the valuation, because price above value must be funded by equity or by seller financing on full standby. The intangibles panel compares the intangible value implied by the appraiser's allocation with the goodwill implied by the business valuation and flags a gap above 10 per cent. That tolerance is ours, not the SOP's. No provision requires a three-report reconciliation memorandum and none says which report governs when the intangible figures diverge; individual credit policy fills the gap, and a lender that has not written its policy on the point has not written it at all. At purchase review, the examiner will hold all three reports in the same file and ask why the numbers did not agree and what the lender did about it. There is no administrative appeal from a 7(a) guaranty repair.
Sequencing the stack
Order the appraisal and the valuation at engagement. The appraisal has the longest lead on special-purpose property and the valuation is quick; both cap the loan and set collateral, so both are needed to size the deal provisionally. Test the $3 million line off the appraiser's allocation, not off the purchase agreement. If the Quality of Earnings report is triggered, it is the critical path, and any credit approval issued before it returns is conditional and should say so on its face. If the file is projection-dependent, the feasibility study belongs at the front of the sequence rather than the back, because it is the report that determines whether there is a deal to size. On special-purpose property the study and the appraisal have to reconcile: the study's stabilised income will be compared to the appraiser's, and the appraiser's allocation sets what the study's coverage is being tested against. We prepare both under separate engagements so that neither compromises the other, and each is written knowing what the other will have to defend.
Frequently asked questions
- Which third-party reports does an SBA acquisition need under SOP 50 10 8.1?
- Every change of ownership needs an independent business valuation from a qualified source. Special-purpose property needs a going-concern appraisal that allocates value to land, building, equipment and intangibles. An Initial Acquisition or Business Expansion with a business purchase price of $3 million or more needs a lender-ordered Quality of Earnings report. A projection-dependent deal needs an independent feasibility study, because the study is the only report in the stack that tests the future.
- How is the $3 million Quality of Earnings threshold measured?
- On the business purchase price: the purchase-agreement price less the appraised value of any owner-occupied commercial real estate, before the equity injection and before any seller note. Owner Buyouts and ESOP transactions are exempt.
- Can the appraiser's allocation change whether a QoE is required?
- Yes. Because the threshold is net of the appraised real estate, and because two accepted going-concern allocation methods can move a material share of value between real property and intangibles, a deal near the threshold can fall on either side depending on the method the appraiser applies. The planner shows both.
- Which earnings figure governs the coverage test?
- Where a Quality of Earnings report is required, its adjusted earnings figure must be used. Otherwise the lender's diligence-adjusted historical figure applies, on the last fiscal year-end or an average of the last two. The seller's recast and the sponsor's projection are reviewed but may not be relied upon.
- What does the SOP say to do when the valuation, the appraisal and the QoE disagree?
- Nothing. Each report is controlling for its own decision: the QoE for coverage, the valuation for the debt cap, the appraisal for collateral. No provision instructs the underwriter how to reconcile conflicting figures across them. That reconciliation has to come from the lender's credit policy and be written into the memorandum.
- Does the going-concern appraisal requirement change under 8.1?
- No. It carries forward unchanged: a full USPAP Appraisal Report from a Certified General appraiser with at least four equivalent going-concern assignments in the last 36 months, allocating separate values, and not prepared for the borrower or seller.
- What does the report stack cost and how long does it take?
- Published ranges run roughly $2,000 to $5,000 for the valuation, $4,900 to $25,000 for a special-purpose going-concern appraisal, $15,000 to $50,000 for a Quality of Earnings report in the $3 million to $10 million band, and $9,500 to $32,000 for a feasibility study. The QoE is usually the critical path at two to six weeks; the appraisal and valuation should be ordered at engagement because they cap the loan.
- Is the planner a credit decision?
- No. It applies the published Appendix 15 rules and market fee ranges to the figures entered and shows what they imply. The operative SOP, the lender's credit policy and the reports themselves govern.
Sources
- U.S. Small Business Administration, Information Notice 5000-880695, Issuance of SOP 50 10 8.1, 14 August 2026, effective 1 October 2026
- U.S. Small Business Administration, SOP 50 10 8.1, Appendix 15, Changes of Ownership
- U.S. Small Business Administration, SOP 50 10 8, special-purpose property, going-concern appraisal and business valuation provisions carried forward into 8.1
- 13 CFR 120.160(b); 13 CFR 120.10
- AICPA, Statement on Standards for Consulting Services, CS Section 100
- NACVA, Domestic Standards Comparison Chart; Uniform Standards of Professional Appraisal Practice, Standards 1, 9 and 10
- Stephen Rushmore, The Rushmore Approach vs. the Business Enterprise Approach, Hospitality Net; SHC Half Moon Bay LLC v. County of San Mateo, 226 Cal.App.4th 471 (2014)
- CliftonLarsonAllen, The SBA Now Requires a Quality of Earnings on Larger Acquisition Loans, August 2026; Brady Ware, New SBA Quality of Earnings Rules, 2026
- Pioneer Capital Advisory, SBA Investor Equity Rules 2026: SOP 50 10 8.1 vs 8, August 2026
- QuickRead (NACVA), SBA business valuation requirements under SOP 50 10 8, October 2025
- SBA Office of Inspector General, Reports 15-09 and 16-22; evaluation of the 7(a) guaranty purchase denial review process
- Provider-published fee and turnaround ranges for Quality of Earnings, business valuation and going-concern appraisal engagements, 2026
Prepared for practitioner use and not legal, tax or regulatory advice. SBA publishes SOP 50 10 8.1 only as a Word document; references are to its internal headings. Fee ranges are published market figures, not quotes.
More free tools: All feasibility tools, including the Feasibility Study Methodology Navigator