Business owners, if you received a PPP loan and are now contemplating a change of ownership, you may need consent from your lender and even the SBA under certain circumstances. Read on to learn what qualifies as a “change of ownership” and what to be aware of before moving forward with the sale.

For purposes of the PPP, what is a “change of ownership”?

  1. At least 20 percent of the common stock or other ownership interest of a PPP Borrower is sold or otherwise transferred.
  2. The Borrower sells or otherwise transfers at least 50 percent of its assets.
  3. A Borrower is merged with or into another entity.

Regardless of any change of ownership, the Borrower remains responsible for a variety of tasks, most notably, the performance of all obligations under the PPP loan. Additionally, prior to the closing of any change of ownership transaction, the Borrower must notify and provide the Lender with a copy of the proposed agreements.

What if the PPP Note is fully satisfied prior to the change of ownership?

There are no restrictions on a change of ownership if, prior to closing the sale or transfer, the Borrower has:

  • Repaid the PPP Note in full; or
    • Completed the loan forgiveness process in accordance with the PPP requirements; and
      • SBA has remitted funds to the Lender in full satisfaction of the PPP Note; or
      • The Borrower has repaid any remaining balance on the PPP loan.

What if the PPP Note is NOT fully satisfied prior to the change of ownership?

Prior approval of the SBA IS NOT required:

  • If the change of ownership is structured as a stock sale of 50 percent or less of the common stock of the Borrower, or if the Borrower completes a forgiveness application reflecting its use of all PPP loan proceeds and submits it to the Lender, and an interest-bearing escrow account is established with funds equal to the outstanding balance of the PPP loan.
  • If the change of ownership is structured as an asset sale, if:
    • The Borrower completes a forgiveness application reflecting its use of all the PPP loan proceeds and submits it to the Lender, and an interest-bearing escrow account is established with funds equal to the outstanding balance of the PPP loan.
    • After the forgiveness process is completed, the escrow funds must be disbursed first to repay any remaining PPP loan balance plus interest.
    • The Lender must notify the appropriate SBA Loan Servicing Center of the location of, and the amount of funds in, the escrow account.

Prior approval of the SBA IS required if a change of ownership does not meet the conditions above. When this approval is needed, contact us or your accounting professional for guidance on how to make the submission.

If you have an outstanding PPP loan and are contemplating a sale of your business or its assets, our attorneys are ready to answer questions regarding this latest guidance or any other COVID-19 related legal concerns. For assistance, please contact us at (631) 738-9100 and visit our Mergers & Acquisitions practice area to learn more about our services.

The information in this article is from: SBA Procedural Notice, Small Bus. Admin. (Oct. 2, 2020)

Thank you to Daniel Axelrod for his research and writing assistance for this article.