On October 2, 2020 the SBA issued a procedural notice regarding Paycheck Protection Program Loans and changes of ownership. The notice clarifies the required procedures for changes of ownership of an entity that received PPP funds.
Definition of Change of Ownership:
- At least 20 percent of the common stock or other ownership interest of a PPP borrower is sold or otherwise transferred
- The borrower sells or otherwise transfers 50 percent of its assets
- A PPP borrower is merged into another entity
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
In addition to the above-mentioned guidelines, 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.
Procedures required prior to change of ownership:
Prior to the closing of any change of ownership transaction, the PPP borrower must notify the PPP Lender in writing of the contemplated transaction. The procedures vary depending on the circumstances of ownership change.
If the following conditions are met, SBA approval is not required:
- The transaction is less than 50% of the borrower's equity. In determining whether a sale or other transfer exceeds this 50% threshold, all sales and other transfers occurring since the date of approval of the PPP loan must be aggregated ; or
- The PPP borrower completes a forgiveness application reflecting its use of all of the PPP loan proceeds and submits it, together with any required supporting documentation, to the PPP Lender. Additionally, an interest-bearing escrow account controlled by the PPP Lender must be established with funds equal to the outstanding balance of the PPP loan.
Obtaining SBA approval if the above-mentioned conditions are not met:
The PPP lender must submit the following to the SBA:
- the reason that the PPP borrower cannot fully satisfy the PPP note or escrow funds as described above;
- the details of the requested transaction;
- a copy of the executed PPP note;
- any letter of intent and the purchase or sale agreement setting forth the responsibilities of the PPP borrower, seller (if different from the PPP borrower), and buyer;
- disclosure of whether the buyer has an existing PPP loan and, if so, the SBA loan number; and
- a list of all owners of 20 percent or more of the purchasing entity.
If you are considering a change of ownership transaction, you should notify your PPP Lender to ensure that you have all the proper documentation in order and have the necessary approval if needed. HLB Gross Collins, P.C. can assist you in understanding this guidance and its applicability to your specific situation.