Key Areas in Updated Standard Operating Procedure (SOP) 50 10 8.1, Lender and Development Company Loan Programs
Beginning October 1, 2026, SBA SOP 50 10 8.1 introduces changes to 7(a) and 504 loan programs. For banks involved in Small Business Administration (SBA) lending, one of the most significant areas to watch is change-of-ownership financing, where new requirements can affect underwriting, equity, financial diligence and transaction structure.
The changes are more than additional paperwork. They put greater emphasis on understanding the financial performance supporting the transaction – and doing that analysis early.
Start with the Transaction Itself
Under the new SOP, 7(a) change-of-ownership transactions are organized into four categories: Initial Acquisition, Business Expansion, Owner Buyout, and ESOP/Cooperative transactions.
Each category carries its own requirements for equity injection, debt-service coverage and financial diligence.
That makes transaction classification an important early step. Understanding the structure of a proposed deal can help lenders identify applicable requirements before underwriting and closing are well underway.
Historical Cash Flow Takes Center Stage
For several types of change-of-ownership transactions, the new requirements emphasize historical or adjusted historical earnings when evaluating debt-service coverage. Projections cannot be used to satisfy the applicable minimum debt-service coverage requirement, and certain transaction categories require a 1.25:1 ratio.
For lenders, that makes the quality of the underlying financial information especially important. Reported earnings may not tell the entire story. Understanding recurring versus nonrecurring items, owner-related expenses, operational changes and other adjustments can help provide a clearer picture of sustainable cash flow.
Larger Acquisitions May Require Deeper Diligence
For Initial Acquisitions and Business Expansions involving a business purchase price of $3 million or more, excluding owner-occupied real estate, an independent Quality of Earnings report will be required for certain loan types. The report must be ordered by and prepared for the lender.
This represents an important shift in the lending process. Financial diligence isn't simply about validating historical numbers. It can help lenders understand the earnings capacity that will support repayment and identify issues that may affect the structure or viability of a transaction.
Deal Structure Matters
The new SOP also changes requirements around equity sources, seller involvement and other elements of transaction structure. For example, certain limited equity sources – including standby debt, seller debt and non-controlling minority equity investments – are collectively limited to 50 percent of the required equity injection. Sellers who remain as consultants may also remain involved for up to 24 months under the new rules.
These provisions make it important to consider the financial, tax and structural aspects of a transaction together – not as separate steps.
What Bankers Should Do Now
For the October 1 effective date, lenders may want to:
- Review SBA transactions already in the pipeline to identify those that may fall under the new requirements.
- Classify change-of-ownership transactions early using the new framework.
- Evaluate the quality of historical financial information supporting the borrower and target company.
- Identify transactions that may require a Quality of Earnings report and allow sufficient time for the analysis.
- Consider valuation, cash flow, equity and deal structure together when evaluating a proposed transaction.
- Set expectations with borrowers and their advisors early so additional diligence does not become a last-minute obstacle to closing.
How We Can Help
SOP 50 10 8.1 changes more than the SBA lending checklist. For lenders financing a business transition, the most impactful change will be the requirement of a Quality of Earnings report.
Starting those conversations early can help identify issues, clarify the financial picture and give everyone involved more time to address what the numbers are saying before the transaction reaches the closing table.
AGH CPAs & Advisors works alongside lenders, business owners and their advisors on financial due diligence and specifically the Quality of Earnings analysis. Other areas we can assist with include valuation and deal structure to help turn financial information into a clearer view of the opportunity, risks, and structure behind a transaction.
Connect with our team of trusted advisors in financial services and business transactions to learn more.
Senior Vice President
Assurance Services
Mark Schmelzle leads the firm’s assurance services group. In addition to his role in administration, Mark’s individual practice focuses primarily on financial institutions, manufacturing/wholesale/distribution entities and private equity groups.
In the financial services and manufacturing industries, his experience includes financial statement audits, fraud investigations and other types of attest services.
In the private equity area, Mark provides a wide range of merger and acquisition services for private equity groups and their portfolio companies, including due diligence, cash flow analysis, quality of earnings review, and potential cost-savings analysis.
Schmelzle is a certified public accountant and a member of the American Institute of Certified Public Accountants, the Kansas Society of Certified Public Accountants and Young Bank Officers of Kansas. He is an alumnus of Leadership Wichita and was named one of the Wichita Business Journal’s “40 Under 40” young leaders in the community. He has also served in leadership positions for community organizations including Youth Entrepreneurs and the Wichita Aero Club.
Source:
U.S. Small Business Administration, SOP 50 10 8.1, Lender and Development Company Loan Programs, effective October 1, 2026.