The Small Business Administration (SBA) has recently issued guidance related to changes in ownership of an entity with a Paycheck Protection Program (PPP) loan. This new guidance will provide additional information and clarity regarding the PPP.
Change in Ownership
- A change in ownership is considered to have occurred when at least 20% of the ownership is sold, at least 50% of the fair value of the assets are sold, or a PPP borrower is merged.
- Regardless of any change of ownership, the PPP borrower remains responsible for the performance of all obligations under the PPP loan.
- Prior to the closing of any ownership transaction, the PPP borrower must notify the PPP lender in writing and provide a copy of the proposed agreements.
PPP Loan Repayment
- If the PPP note is repaid in full, or the loan forgiveness process is complete, there are no restrictions on a change of ownership.
- If the PPP note is not fully satisfied, SBA prior approval is NOT required if the transaction is:
- A stock sale of less than 50% or the PPP borrower completes a forgiveness application and sets funds equal to the loan amount in escrow with the lender.
- An asset sale where the PPP borrower completes a forgiveness application and sets funds equal to the loan amount in escrow with the lender.
- SBA approval IS required if the above conditions are not met.
- Special conditions apply if the new owners or the successor arising from such a transaction has a separate PPP loan.
For more information on how this new PPP loan guidance may affect your business during a transition of ownership, please contact your CRI advisor.