October 6, 2020 - Protests & Litigation

SBA Issues Additional Guidance on PPP Loans and Change of Ownership

Small BusinessWe have received questions from a number of clients about whether SBA’s consent is required for a change of control involving a Paycheck Protection Program borrower.  On October 2, SBA provided additional guidance that clarifies:

1. No consent is required (unless loan documents indicate otherwise):

a. Transfer of less than 20 percent of the common stock or other ownership interest of a PPP borrower.

b. Transfer of less than 50 percent of the assets of a PPP borrower  (measured by fair market value).

c. The PPP note is repaid in full.

d. The loan forgiveness process has been completed and (i) SBA has remitted funds to the PPP lender or (ii) the borrower has repaid any remaining balance.

2. Lender consent only  (unless loan documents indicate otherwise) is required for either of the following situations:

a. Stock Sale: the sale or other transfer of 50% or less of the common stock or other ownership interest of the PPP borrower.

b. Stock or Asset Sale: The PPP borrower submits its forgiveness application to the PPP Lender and establishes an interest bearing escrow account controlled by the PPP lender for the outstanding loan balance.

Even where only lender consent is required, additional information must be submitted to SBA within five business days of closing, including:  identity of the new owners and their ownership percentages, tax identification numbers for any owner(s) with 20 percent or more of equity, and the  location and amount of funds in escrow, if an escrow account is needed.

3. In all other circumstances, both lender consent and SBA consent is required prior to transaction close.

4. SBA approval requests (which will be reviewed in 60 calendar days) are submitted to the appropriate SBA Loan Servicing Center and include:

a. The reason that the PPP borrower cannot fully satisfy the PPP Note or escrow funds.

b. The details of the transaction

c. A copy of the PPP note

d. 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.  If the agreement is for a sale of 50% or more of the borrower’s assets, the purchase or sale agreement must include appropriate language regarding the assumption of the PPP borrower’s obligations under the PPP loan by the purchasing person or entity, or a separate assumption agreement must be submitted to SBA.

e. Disclosure of whether the buyer has an existing PPP loan and, if so, the SBA loan number; and

f. A list of all owners of 20 percent or more of the purchasing entity.

If any of the new owners or the successor arising from such a transaction has a separate PPP loan, the two loans must be segregated.