QoE for Lenders & SBA Lending
Published February 2026
$5K QoE vs. $200K–$2M default exposure — the math is simple.
$5K–$25K
QoE cost depending on complexity
$200K–$2M+
Default cost on a single bad loan
Hours
For preliminary analysis
The cost of a bad acquisition loan far exceeds the cost of a Quality of Earnings report. For lenders — especially those underwriting SBA 7(a) acquisition loans — QoE analysis has shifted from "nice to have" to a critical underwriting requirement.
Why Lenders Require QoE
Acquisition lending carries unique risks. Unlike traditional business loans where the borrower has an operating track record, acquisition loans fund a change of ownership — and the new owner's ability to service debt depends entirely on the accuracy of the target's financial picture.
Earnings verification
Confirms that reported EBITDA reflects actual, sustainable cash flow
Adjustment transparency
Identifies owner add-backs, one-time items, and discretionary expenses with documentation
Trend analysis
Reveals whether the business is growing, stable, or declining — critical for debt service projections
Working capital assessment
Ensures adequate working capital for ongoing operations post-acquisition
SBA Lending & QoE Requirements
SBA lenders face heightened scrutiny from the SBA and their CDCs. While the SBA SOP doesn't explicitly mandate QoE reports, prudent lenders increasingly require them for acquisition loans above $500K — and many require them for all change-of-ownership transactions.
The rationale is straightforward: SBA acquisition loans often involve borrowers with limited equity (as low as 10% injection) and long amortization periods. If reported earnings are overstated by even 15–20%, the debt service coverage ratio drops below acceptable thresholds. A QoE report catches these discrepancies before the loan closes.
Strengthening Your Underwriting
Adjusted EBITDA bridge
Clear reconciliation from reported to adjusted earnings, with each adjustment categorized and documented
Revenue quality metrics
Customer concentration, contract vs. project revenue, recurring revenue percentage
Expense normalization
Owner compensation benchmarking, related-party transaction analysis, discretionary vs. necessary spending
Cash flow validation
Proof of cash analysis reconciling reported income to bank deposits
Working capital peg
Normalized working capital target for the purchase agreement
Lender Workflow with Shepi
Pre-screening
Run a quick financial assessment on the borrower's application package to evaluate deal viability before committing underwriting resources
QoE coordination
If you require a third-party QoE, recommend QoE providers who use Shepi for faster turnaround
Underwriting integration
Incorporate QoE findings into your credit analysis and debt service coverage calculations
Committee presentation
Use QoE-derived adjusted financials in your credit memo and loan committee materials
Portfolio monitoring
For ongoing covenant compliance, the same analytical framework supports periodic financial reviews
Risk Mitigation
Every acquisition loan that defaults costs the institution far more than the QoE analysis would have. The math is simple:
QoE cost
Typically $5K–$25K depending on complexity
Default cost
Loss exposure of $200K–$2M+ on a single bad loan, plus workout costs and reputation risk
Prevention value
Catches earnings overstatements, undisclosed liabilities, and unsustainable trends that cause most acquisition loan failures