Expertise Beyond the Numbers

SBA Issues Guidance for Changes of Ownership of PPP Borrowers

SC&H’s Key Takeaways

  • The SBA needs to be notified of a change in ownership transaction if the entity has a PPP loan.
  • In some instances, the SBA must review and approve the change in ownership transaction prior to its completion.
  • The PPP borrower remains liable for the PPP loan even after the change in ownership transaction is complete.
  • Buyers of a business with a PPP loan balance will want to understand their risk relative to that loan balance and related SBA issues.
  • If a PPP borrower with an existing loan balance is contemplating a sale or a change in ownership, they should review the guidance and discuss reporting requirements with their PPP lender ASAP.

On October 2, 2020, the SBA released guidance, with the same effective date, on how existing PPP loans are impacted by businesses that have a change in ownership. For the purposes of the PPP loan, a change in ownership has occurred when (1) at least 20% of the ownership interest is transferred, (2) the PPP borrower transfers 50% of the business’s assets, or (3) the borrower merges with another entity.

Essentially, the SBA’s guidance states that the original PPP borrower remains the responsible party for the loan even after a change in ownership occurs. It was the original borrower who made certain certifications on the application, so they remain liable for performance on the loan and all applicable PPP requirements.

Additionally, the PPP borrower must notify the PPP lender in writing as to the proposed transaction that would result in a change in ownership. The recently issued SBA Procedural Notice (Control No.: 5000-20057) outlines the steps the borrower must take prior to the closing of any change of ownership transaction, and lays out the circumstances under which the SBA must first approve the transaction.

For PPP loans that are fully satisfied, either through repayment or forgiveness, there are no restrictions on a change of ownership.

For PPP loans that are not fully satisfied, there are no restrictions on a change of ownership if the change resulted from the following:

  • A transfer of 50% or less ownership interest.
  • A sale of 50% or more of a business’s assets and a forgiveness application has been filed.

In these cases, the SBA must be notified, but prior approval is not required.

If the change of ownership does not meet the above criteria, notification and prior approval from the SBA is required before a change in ownership transaction may occur. In order to obtain prior approval from the SBA, the PPP Lender must submit the request to the appropriate SBA Loan Servicing Center.