SBA issues new guidance on PPP loan forgiveness and change of ownership

On October 2, the SBA released a procedural notice detailing the required procedures for changes of ownership of an entity that has received Paycheck Protection Program (PPP) funds. The Notice details the definition of a change of ownership as :

• 20% or more of the common stock or other ownership interest of a PPP borrower is sold or transferred, whether in one or more transactions, including to an affiliate or an existing owner of the entity;

• The PPP borrower sells or otherwise transfers at least 50% of its assets (measured by fair market value), whether in one or more transactions; or

• A PPP borrower is merged with or into another entity.

Of particular note are the cases in which SBA approval for changes of ownership are not required, including:

1) the loan has been paid in full or forgiven by the SBA.

2) In cases of unit or stock purchases or mergers a) the acquisition accounts for less than 50% of the borrower’s ownership interest; or b) the borrower has completed the requirements for, and submitted a forgiveness application to the PPP lender, and the PPP lender has control of an interest-bearing escrow account with funds equal to the outstanding balance of the PPP loan. After the forgiveness process (including any appeal of SBA’s decision) is completed, the escrow funds must be disbursed first to repay any remaining PPP loan balance plus interest.

3) For asset purchases of more than 50% of the borrower’s assets, the PPP borrower completed a forgiveness application, detailing its use of the proceeds, submitted with supporting documentation to the PPP Lender, and an interest-bearing escrow account controlled by the PPP Lender has been established with funds equal to the outstanding balance of the PPP loan.

If none of the above criteria are met, the borrower must seek SBA approval for the change of ownership. The PPP lender is then required to submit documentation to the SBA, including transaction documents and information about the buyer and its ownership. The SBA will then review and provide a decision within 60 days of receipt of a complete request.

The full notice can be found here:

https://www.sba.gov/sites/default/files/2020-10/5000-20057-508.pdf