Guidance For PPP Borrowers With Ownership Changes
The SBA recently issued more new guidance relating to tax-favored loans under the Paycheck Protection Program – this notice concerns responsibilities and procedures when there is a change of ownership for a business entity that has received a PPP Loan.
According to the new SBA guidance, there is a change of ownership for these purposes when at least one of the following occurs:
- At least 20% 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
- The PPP borrower is merged with or into another entity.
Change of ownership does not absolve a borrower of responsibilities concerning their PPP loans. It continues to be responsible for:
- Performance of all obligations under the PPP loan;
- Certifications made under the PPP loan application, including the certification of economic necessity;
- Continued compliance with all other PPP loan requirements, and
- Obtaining, preparing and retaining the necessary forms and documentation and providing those forms and documents to the PPP lender, servicer or SBA upon request.
Under the procedural notice, a PPP borrower must notify its lender before it completes a change of ownership and provide documentation of the transaction. SBA approval may be required; the SBA has 60 days to review the submission and make a determination.
In addition, there are different procedures to be followed, depending on whether or not the PPP loan has been satisfied. If a loan hasn’t been satisfied, the borrower must establish an escrow account, controlled by the lender that includes the amount of the outstanding PPP loan balance. The escrow funds must be used first to repay any remaining PPP loan balance after forgiveness has been approved.
The new notice also addresses situations where the new business owner has a PPP loan of its own. It provides details for segregating PPP funds and expenses along with specifying the documentation required.