One of the most accessible paths to building wealth in America is through the process of founding, growing, and then selling a business. Tens of thousands of “main street” businesses are acquired every year and these transactions often provide a transformational wealth event that was many years in the making.
They also provide an opportunity for others to build wealth through expansion of an existing business and provide a path to entrepreneurship through acquisition. A pivotal part in all of this is the federal government’s Small Business Administration loan program, which financed roughly 7,000 business acquisitions in fiscal year 2025, representing $8.29 billion in acquisition lending - a 34.6% increase from the prior year.
However, on October 1 the SBA put into action SOP 50 10 8.1 for SBA lenders to evaluate whether or not new transactions meet the standards for an SBA loan. Buyers and sellers have recently found themselves in a stricter environment limiting the options for seller financing, and increasing the capital needed by buyers. So what’s in the new changes? I spoke with Joshua Carnes, the VP of the Texas Association of Business Brokers and Principal & Sr. M&A Advisor with Lion Business Advisors, to get a better sense of how this is impacting transactions.
In your own words, can you describe the latest SOP from the SBA that was put in place on October 1?
The biggest shift is that the valuation now has to support the full transaction structure much more tightly. Before October 1, third-party valuations only had to support the primary SBA loan, which gave buyers and sellers more room to bridge gaps with seller financing. Under the new rules, the valuation is effectively capped at what can be financed by the SBA, meaning a buyer may have to bring more cash or the purchase price may have to come down. In the past, deals could build in more seller financing to bridge the gap between traditional lender financing and the valuation of the company. Now with these new rules, the SBA is saying that the seller financing is part of the overall transaction structure, and the SBA valuation is all that they will finance. In addition to this, the SBA also put into place a new requirement for a Quality of Earnings report for transactions where total project cost is at or above $3 million.
Can you talk more about that? What is a Quality of Earnings and why is the SBA requiring it?
A Quality of Earnings report, usually called a “Q of E”, is basically a deeper financial review of the business's earnings. Small, owner-operated companies books are often not pristine, and this is a way for a buyer to confirm if the cash flow shown on the P&L matches with the underlying records, if there are one-time expenses that need to be noted, and a way to sort through years of running personal expenses through the business. The SBA is now requiring lenders evaluating deals over $3 million incorporate a Q of E into their approval process. The buyer is now on the hook for paying for this, which can run anywhere from $10,000 to over $30,000 for main street businesses. All prior to getting approval from the SBA.
These changes seem to require more cash up front from buyers. Can you walk me through an example of what this might look like for a buyer? Take a $2 million business. At minimum, the buyer may need to inject 10%, so that’s $200,000 right there. Then they still need working capital and liquidity on top of that, personally, outside of the SBA loan. Realistically, you could be looking at $300,000 to $400,000 in cash just to purchase a $2 million business, and the buyer still has the SBA loan on top of that. A year ago, the structure could be much more flexible because seller financing could play a bigger role in covering that gap. That is no longer an option. That’s what’s changed.
What does that look like for a business listed at over $3 million in purchase price?
Once you get to around $3 million, the buyer is dealing with more than just a larger down payment. You can also trigger that Quality of Earnings requirement, which means additional cost and a much deeper review of the company’s financials. A buyer may spend $10,000 to $20,000 just to determine whether the business will qualify for financing. And if the books aren’t clean, a deal that might have worked before may not qualify at all, and the buyer is now out that up-front cost without even getting the deal fully on the table.
What does all of this mean for founders and small-business owners looking to sell in 2027?
They can still sell, but they may have to accept a very different deal structure or price than they expected. Previously, for a business making roughly $400,000–$500,000 a year, we would have expected around a 4x cash-flow multiple in many cases. But now, sellers may be looking more at 3x to 3.5x, and potentially even lower depending on rates and financing conditions. The good news is that there are still a lot of buyers in the market. While valuations may be cooling, there are still many opportunities for business owners looking to sell in 2027.