Last week, the Small Business Administration (SBA) issued a Procedural Notice sharing insights on Paycheck Protection Plan (PPP) loans and changes in ownership. There was previously some uncertainty as to the procedures both SBA employees and PPP lenders must follow if a PPP borrower undergoes a change of ownership and the new notice offers much-needed transparency on the topic. While intended to provide guidance to SBA employees and PPP lenders, the notice also benefits PPP borrowers across the country who are in the process of selling their businesses, whether due to COVID-19 or otherwise. Doeren Mayhew’s advisors summarize the new notice and equip you with the information you’ll need to know if you are a PPP borrower undergoing a change in ownership.

 “Change in Ownership” Defined

The notice explains that for PPP purposes, a change of ownership occurs when:

  1. At least 20% of the common stock or other ownership interest of a PPP borrower is sold or transferred. This could be in one or multiple transactions and also includes selling to an affiliate or existing entity owners,
  2. A PPP borrower sells or transfers at least 50% of their assets (determined by fair market value). This could also be in one or multiple transactions, or
  3. A PPP borrower merges with or into another entity.

The notice also clarifies that the PPP borrower is responsible for retaining records of sale and providing necessary documentation when requested from their PPP lender or the SBA.

What to Do During a Change in Ownership

If your business is undergoing a change in ownership and you have received a PPP loan, there are a few steps to be taken to stay in accordance with the SBA’s guidelines. First, you must notify your PPP lender of the change in writing and provide your lender with the transaction documents prior to closing. If either of the following conditions has been satisfied prior to closing, there aren’t restrictions on the change in ownership:

  1. The PPP note has been fully repaid, or
  2. You have submitted a loan forgiveness application, and
  • The SBA has released funds to your PPP lender to satisfy the PPP loan, or
  • You have repaid the remaining balance on your loan

When is SBA Approval Required?

If your PPP loan has not been fully satisfied before the closing of your change in ownership, prior approval by the SBA and your PPP lender may be required. Be sure to compare your transaction with the below criteria to determine whether you will need to plan ahead for approval.

Not Required

If the below conditions are satisfied, prior approval by the SBA is not required:

  • Your transaction is designed as a sale or transfer of an equity interest or as a merger, and
    • The sale is of 50% or less of the common stock (be sure to aggregate all sales and transfers since your PPP loan was approved to confirm you’re under the limit), or
    • You have submitted a loan forgiveness application (with supplemental documents) and have escrowed funds equal to the remaining PPP loan balance to your lender.
  • Your transaction is designed as a sale of assets (50% or more) and you have submitted a loan forgiveness application (with supplemental documents) and have escrowed funds equal to the remaining PPP loan balance to your lender.


If none of the above conditions are satisfied, then prior approval by the SBA will be required. Your lender is obligated to submit details to the SBA explaining why you can’t fully satisfy the note or escrow the funds, as well as:

  • The details of the transaction
  • A copy of the PPP note
  • Proposed transaction or merger agreements
  • Disclosure of whether the new buyer has a PPP loan
  • A list of all 20% or more owners of purchase

After your lender submits this information, the SBA has 60 days to respond to your request and can further require additional “risk mitigation” measures. In the event your transaction is an asset sale of 50% or more, the SBA’s approval will be based upon the new purchaser accepting all of your obligations for the PPP loan.

Next Steps

This new notice provides many business owners with the clarity they need to determine how their transactions may be impacted by the SBA. While restructuring or selling your business during this turbulent economy may be beneficial, it’s important to be prepared for the obstacles you may face if you have a PPP loan. If you need help navigating your change in ownership transaction, contact Doeren Mayhew’s dedicated advisors today.