October 23, 2026 | 1:00 p.m. ET
SEO title: Practice Acquisition | White Coat Financial Partners
Meta description: Buying or selling a practice? The SBA now requires quality of earnings reports on qualifying deals of $3 million or more. Learn how cash proof can shape financing.
Every practice acquisition now carries a second conversation alongside the purchase price: the one about proof. A practice acquisition financed through the SBA's flagship loan program no longer rests on a good story about next year. Since October 1, 2026, it rests on verified earnings, reconciled bank activity, and receivables that behave the way the seller says they do.
Key takeaway: For qualifying SBA-financed transactions, a practice’s cash must withstand an independent, audit-like review. Receivables quality and cash position analysis can influence deal structure because lenders must use the QoE-derived normalized earnings to assess debt-service coverage.
Practice Acquisition: What the New SBA Rule Means for Deal Diligence
Effective October 1, 2026, SBA SOP 50 10 8.1 requires an independent Quality of Earnings report for 7(a) initial acquisitions and business expansions with a business purchase price of $3 million or more, excluding owner-occupied real estate. The lender must order the report and it must be prepared for the lender. It includes a cash proof reconciling reported receipts and disbursements to bank activity for the trailing 12 months and the two most recent fiscal years. The lender must use normalized earnings from the report in its debt-service coverage calculation. AGHLC’s summary and CRI’s explanation describe the requirements.
Projections can no longer satisfy the minimum DSCR: 1.25x for an initial acquisition and 1.15x for a business expansion. Standby debt, seller debt, and non-controlling minority equity are collectively capped at 50% of the required equity injection. Sellers who stay on as consultants may remain involved for up to 24 months.
The timing matters in a selective market. LevinPro HC reported 105 physician medical group transactions in Q3 2026, down from 107 in Q2 and 23% below Q3 2025’s 137 deals. There were 368 deals announced in the first three quarters of 2026; dental led subsectors with 51 transactions. Separately, SBA fiscal 2026 ended with 56,130 approved 7(a) loans totaling $32.4 billion, both double-digit declines; 504 dollar volume fell 9% to $7.1 billion. LevinPro HC data and American Banker’s report add context to the tighter credit environment.
Prepare for Quality of Earnings Scrutiny
A well-organized financial record can help the lender and independent reviewer follow the practice’s cash story. Buyers and sellers can start with this five-point action list:
- ✅ Review aging concentration and explain older balances.
- ✅ Summarize payer mix and identify major concentrations.
- ✅ Document denial history and follow-up practices.
- ✅ Provide a clear, documented collections process.
- ✅ Inventory equipment, condition, and anticipated replacement needs.
Cash Proof, Receivables, and Valuation
What does the SBA's new quality of earnings rule actually change for a practice sale?
For qualifying SBA transactions, the lender must obtain an independent QoE and use its normalized earnings in underwriting. The report is more than a review of stated earnings: the cash proof compares reported receipts and disbursements with bank activity across the required periods. If verified earnings do not support the proposed financing, the parties may need to revisit valuation, financing, or the transaction structure.
Why does cash proof matter more than next year's projection?
A forecast can describe a business plan, but it cannot replace the historical earnings needed to meet the SBA’s minimum DSCR. Cash proof tests whether reported activity reconciles to actual bank movements, giving the lender a stronger basis for assessing repayment capacity. That makes financial planning and cash position analysis essential before a buyer commits to a price or a seller relies on projected growth.
How does a clean receivables picture protect my valuation?
Receivables are part of the cash story: the reviewer and buyer need to understand whether balances are collectible and how collections support reported revenue. Clear aging detail, payer information, denial records, and documented collection practices help explain the quality of that revenue. For a seller, organized support can reduce uncertainty; for a buyer, it helps frame realistic working-capital needs and an informed valuation.
Forward-Looking Financing for the Closing Gap
How can AR-Backed Working Capital help a buyer or a seller close the timing gap?
For a seller, AR-Backed Working Capital can provide liquidity while receivables are being collected and help clarify the cash story the QoE will examine. For a buyer, it can support transition expenses and early operating months without adding new bank debt. White Coat Financial Partners also provides financing options for medical practices as part of a broader strategic capital management plan.
The practice keeps its own billing and collections. White Coat Financial Partners does not take possession of receivables, contact patients, or intervene in the billing process. This is a non-notification lending model: lending is against the aggregate sum of monies due across total receivables, not individual claims. Repayment is structured to align with cash flow, with no compounding interest or open-ended discount rates. Lending is AR-backed, not based solely on personal credit scores, and scales from solo practices to multi-location groups. Approval may be available within 24–48 hours, depending on the file. Pairing financing with Lean Six Sigma consulting can shorten the billing cycle and reduce the long-term need for financing.
How does equipment leasing fit an acquisition?
Equipment leasing can complement acquisition financing by paying for the use of equipment rather than ownership, helping preserve cash for transition priorities. Lease terms may offer an option to upgrade at the end of the term, positioning the practice to cycle into newer imaging, diagnostic, or AI tools. That flexibility can support acquisition financing or an eventual exit.
On the balance sheet, operating leases appear as expenses on the P&L and not as liabilities, which preserves debt capacity and keeps debt-to-equity ratios clean for the next financing or the eventual transaction. That structural advantage is why leasing is often the preferred route for practices positioning for practice acquisition financing or an eventual exit: equipment access stays aligned with cash planning while the balance sheet stays unencumbered.
There is also a tax angle worth discussing with your accountant: under IRS Section 179 lessees may deduct the full lease payment as a business expense in the year of payment (check with your tax advisor to see if you qualify). Paired with AR-Backed Working Capital, leasing lets a practice bring in the technology that drives volume without absorbing depreciation or ownership risk, and upgrade options at the end of the term mean you can cycle into newer imaging, diagnostics, or AI tools as they mature.
Frequently Asked Questions
Does the $3 million threshold refer to the SBA loan amount?
No. The requirement applies to qualifying initial acquisitions and business expansions with a business purchase price of $3 million or more, excluding owner-occupied real estate.
Can a buyer use next year’s projections to meet the minimum DSCR?
No. The stated minimum DSCR must be supported by QoE-derived normalized earnings, not projections.
Who orders the required QoE report?
The lender orders the report, and it must be prepared for the lender.
Take the Next Step
Prepare your transaction with forward looking financing, financial planning, and a clear view of cash needs. Contact White Coat Financial Partners through our medical practice financing page or call 910-688-5077. Our unmatched expertise, gold standard diligence, and white-glove services can help you approach your next decision with clarity and strategic advantage.
Accounting is history. Financing is forward looking.
About the Author
Stuart D. Anderson is the founder and President of White Coat Financial Partners, a Fayetteville, NC-based firm providing specialized financial and advisory services for healthcare professionals and organizations. With deep expertise in AR-backed working capital, equipment leasing, M&A brokerage, and Lean Six Sigma process optimization, Stuart helps medical practices unlock capital, streamline operations, and achieve long-term financial stability. Connect with Stuart on LinkedIn.