The Small Business Administration today issued a notice explaining required procedures when an entity that has received a Paycheck Protection Program loan experiences a change in ownership. Borrowers must notify their PPP lenders in writing prior to the closing of any covered change in ownership, which occurs when at least 20% of common stock or other ownership interest in a PPP borrower is sold or transferred, when the borrower sells or transfers at least 50% of its assets or when the borrower merges with or into another entity.
The lender may approve a change in ownership without prior SBA approval for changes structured as a sale or transfer of common stock or other ownership interest, as a merger or as an asset sale. Sales or transfers of ownership interest and mergers are exempt from SBA approval provided the transfer or sale is 50% or less of the ownership interest or the borrower submits a PPP forgiveness application. (The borrower must escrow funds to pay any unforgiven PPP balance.) Asset sales are exempt when they amount to less than 50% of the borrower’s assets, a forgiveness application is filed and funds escrowed to pay any unforgiven balance. The notice includes notification requirements from lenders for all covered changes of ownership.
In all other cases, the PPP lender must submit a request for SBA approval to the appropriate SBA Loan Servicing Center. The notice provides a list of what these requests must include. SBA approval “will be conditioned on the purchasing entity assuming all of the PPP borrower’s obligations under the PPP loan, including responsibility for compliance with the PPP loan terms,” SBA said. Regardless of any change, the PPP borrower remains responsible for performing loan obligations, PPP-related certifications and preparing and retaining all required documentation.