The SBA has released guidance for PPP borrowers involved in a merger or sale. Find out when SBA prior approval is required and how to request it.

COVID Financial Management

Considering Selling or Merging? Review SBA’s Latest PPP Transfer Guidelines

  • Jack Rybicki
  • 10/5/2020

Key insights

Have a PPP loan and considering an ownership change? Let CLA help you navigate the process.

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On October 2, 2020, the Small Business Administration (SBA) released a Procedural Notice on Paycheck Protection Program Loans and Changes of Ownership. The Procedural Notice sets forth a PPP borrower’s responsibilities in the event of a change of ownership, including clear guidance on when SBA prior approval is required and the procedures to request such approval.

What we know

Change in ownership definition

For purposes of the PPP, a change in ownership will be considered to have occurred when one of these conditions are met:

  1. At least 20 percent of the common stock or other ownership interest of a PPP borrower is sold or otherwise transferred, whether in one or more transactions, one 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

PPP borrower responsibilities

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

Additionally, the PPP borrower remains responsible for obtaining, preparing, and retaining all required PPP forms and supporting documentation and providing those forms and supporting documentation to the PPP lender or the lender servicing the PPP loan or to the SBA upon request.

Prior to the closing of any change of ownership transaction, the PPP borrower must notify the PPP lender in writing of the contemplated transaction and provide the PPP lender with a copy of the proposed agreements or other documents that would carry out the proposed transaction.

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.
  3. 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

    Other items of interest

    In the event of a change of ownership structured as an asset sale, SBA approval will be conditioned on the buyer assuming all of the PPP borrower’s obligations under the PPP loan. The purchase or sale agreement must include appropriate language regarding the assumption of the PPP borrower’s obligations under the PPP loan by the buyer.

    In the event of a change of ownership structured as an ownership sale, the original PPP borrower will remain subject to all obligations under the PPP loan.

    How we can help

    CLA can help you navigate the ever-changing PPP forgiveness landscape and any ownership changes involving entities with PPP loans. Whether you need just a short consultation or full support, we have a forgiveness package option for you. Our PPP professionals are also available to provide educational webinars to trade groups, affiliated company groups, and banking clients with PPP loans.

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