Monday 10/12/2020

Important PPP Update for Borrowers Mid-Transfer

On October 2, the SBA released a Procedural Notice regarding PPP Loans regarding transfer guidelines.

For purposes of the PPP, a “change of ownership” will be considered to have occurred when:

(1) at least 20 percent of the common stock or other ownership interest of a PPP borrower (including a publicly-traded entity) is sold or otherwise transferred, whether in one or more transactions, 1 including to an affiliate or an existing owner of the entity

(2) the PPP borrower sells or otherwise transfers at least 50 percent of its assets (measured by fair market value), whether in one or more transactions

(3) a PPP borrower is merged with or into another entity

Regardless of any change of ownership, the PPP borrower remains responsible for:

  • Performance of all obligations under the PPP loan
  • The certifications made in connection with the PPP loan application, including the certification of economic necessity
  • Compliance with all other applicable PPP requirements

Borrowers must notify their PPP lender in writing of the transaction and provide a copy of the proposed agreements before the change of ownership. 

There are no restrictions on a change of ownership if prior to closing the sale or transfer, the PPP borrower has repaid the note in full or completed the loan forgiveness process and the SBA has remitted funds to the PPP lender.

If you have a PPP loan and are in the middle of or considering a change of ownership, please reach out to your advisor for further guidance.

SBA approval requirement

The nature of the procedures to be followed will differ to some extent depending on the status of the PPP loan immediately prior to a change of ownership transaction. For instance, if the PPP loan is fully satisfied prior to closing the sale or transfer, there are no restrictions. The PPP loan can be satisfied by either repayment in full or full completion of the PPP loan forgiveness process.

If the PPP loan is not satisfied prior to closing the sale or transfer, SBA approval is NOT required in the following scenarios:

  1. If the change of ownership is structured as an ownership sale and either (i) consists of 50% or less of the ownership interest of the PPP borrower or (ii) the PPP borrower completes and submits a forgiveness application together with any required supporting documentation and establishes an escrow account controlled by the PPP lender equal to the outstanding balance of the PPP loan.
  2. If the change of ownership is structured as an asset sale for 50% or more of the PPP borrower’s assets (measured by fair market value) and the PPP borrower completes and submits a forgiveness application together with any required supporting documentation and establishes an escrow account controlled by the PPP lender equal to the outstanding balance of the PPP loan.

SBA prior approval is required if a change of ownership of a PPP borrower does not meet the conditions described above.

Procedures for requesting SBA approval

To obtain the SBA’s prior approval of requests for changes of ownership, the PPP lender must submit a request to the SBA that includes:

  • The reason the PPP borrower cannot fully satisfy the PPP loan or establish the required escrow of funds prior to closing the sale or transfer
  • The details of the requested transaction
  • A copy of the executed PPP loan
  • Any letter of intent and the purchase or sale agreement setting forth the responsibilities of the parties to the transaction (borrower, seller (if different than borrower), and buyer)
  • Disclosure of whether the buyer has an existing PPP loan
  • A list of all owners of 20 percent or more of the purchasing entity

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