PPP Loans and Change to Business Ownership
The Small Business Administration has issued guidance related to PPP loans when there is a change in ownership of the borrowing business. The notice provides for the required procedures when there is a change in ownership.
The notice defines a change in ownership as when any of the following take place:
- At least 20 percent of the common stock or other ownership interest of a PPP borrower (including a publicly traded entity) is sold or otherwise 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 percent of its assets (measured by fair market value), whether in one or more transactions, or
- A PPP borrower is merged with or into another entity.
The SBA clarifies the need to look at all transfers to determine if there has been a change of ownership:
For purposes of determining a change of ownership, all sales and other transfers occurring since the date of approval of the PPP loan must be aggregated to determine whether the relevant threshold has been met. For publicly traded borrowers, only sales or other transfers that result in one person or entity holding or owning at least 20% of the common stock or other ownership interest of the borrower must be aggregated.
Even with a change in ownership, the borrower still remains responsible for:
- The performance of all obligations under the PPP loan,
- The certifications made in connection with the PPP loan application, including the certification of economic necessity, and
- Compliance with all other applicable PPP requirements.
As well, the SBA notes:
Additionally, the PPP borrower remains responsible for obtaining, preparing, and retaining all required PPP forms and supporting documentation and providing those forms and supporting documentation to the PPP lender or lender servicing the PPP loan (referred to as the “PPP Lender” in this Notice) or to SBA upon request.
The SBA Procedural Notice is available here.