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Ownership Changes with a PPP Loan

10/09/2020
Chris Wittich

Last week the SBA came out with some new guidance for situations where a business has a PPP loan and they are going through some ownership changes and it’s a must read if you are having any type of ownership changes while you have a PPP Loan outstanding.

Once you have fully satisfied the PPP Loan either by submitting and receiving approval of forgiveness, or by repaying the note in full you can do whatever you want with ownership changes without worrying about the SBA because of your PPP loan.  Very few businesses have submitted forgiveness applications yet much less received back an answer so this should have broad application to anyone considering a business sale, ownership changes, asset sales, mergers, anything along those lines.

If your loan is not fully satisfied then you’ll fall into one of two categories.

  • SBA prior approval is not required
    • If the sale or transfer of interest is 50% or less of the common stock or ownership interest.
    • If the sale or transfer is more than a 50% interest and you submit the PPP loan forgiveness application and escrow the full amount of the PPP Loan outstanding balance. That escrow will only be released once the PPP loan forgiveness process is completed and any remaining balance of the PPP loan is paid off with that escrow account.
  • SBA prior approval is required in all other cases

In all situations where there is a transfer of interest, whether or not the SBA prior approval is needed, there is additional reporting that needs to be done.  Any transfer of interest, large or small, will require that you notify the bank of the changes and the new ownership structure including who any new owners are.  Generally speaking, the responsibilities for using the PPP loans properly and complying with the terms of the PPP loans are passed along to any new owners.

A few important definitions as well to help answer some questions you might have around this new guidance.  Sometimes ownership changes are sales of stock, but any sale of assets that exceeds 50% of the assets of a business will also be considered an ownership change.  Sometimes instead of a direct ownership change there is a merger or two companies, those mergers will also be brought into this new guidance.

You need to be aware of these new rules if you are planning on having any ownership transactions prior to your PPP loan being 100% satisfied.  The escrow requirement might catch some people by surprise but it’s important you are looking at these rules very carefully in any ownership change situation.  If you would like help with it, please feel free to reach out to any member of Our Leadership Team.

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