PPP loans and ownership changes

The Paycheck Protection Program has provided crucial relief to small businesses affected by the COVID-19 pandemic.  While the Program provided timely relief to businesses across the country, the swift implementation of such comprehensive legislation has left some business owners with unanswered questions.

One area of uncertainty has been what requirements exist for PPP Loan recipients who are navigating a change in ownership prior to satisfying their loan obligations.  To address this concern, the Small Business Administration issued Procedural Notice 5000-20057 on October 2, 2020.  The Notice provides essential information concerning what constitutes a change in ownership, notification and consent requirements, and affirms that new ownership assumes responsibility for the certifications made by the original borrower. 

In essence, an aggregate change in ownership of at least 50% requires the consent of the SBA unless the borrower funds an escrow account equal to the outstanding balance of the PPP loan.  Even in cases where the threshold for SBA consent is not met, the borrower is required to notify their lender in writing of any change in ownership, and the lender is then required to notify the SBA.  Finally, borrowers who already have a PPP loan and subsequently acquire ownership in an entity with its own PPP loan, are required to document the use of PPP funds and expenses for forgiveness calculations separately between the two borrowing entities.

Click for the SBA Procedural Notice


 

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Topics: PPP Loan

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