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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.
The notice explains that for PPP purposes, a change of ownership occurs when:
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.
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:
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.
If the below conditions are satisfied, prior approval by the SBA is not required:
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:
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.
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.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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