If you are looking to acquire or sell an entity that has received Paycheck Protection Program (PPP) funds, it is important to consider the ramifications that a change of ownership will have on the proposed transaction. For purposes of the PPP, a “change of ownership” means when (i) twenty percent (20%) or more of the ownership interest of a PPP borrower is sold or otherwise transferred, (ii) fifty percent (50%) or more of the assets of a PPP borrower are sold or otherwise transferred, or (iii) a PPP borrower is merged with or into another entity.
In all instances, the PPP borrower will remain responsible for performing all the obligations and complying with all other requirement under the PPP loan. In addition, should the new owner use PPP funds for unauthorized purposes, the SBA would have recourse against the new owner. If the new owner already had a separate PPP loan, they must segregate and delineate PPP funds and expenses by providing documentation demonstrating compliance with PPP requirements.
Prior to the closing of any change of ownership transaction, the PPP borrower must notify its PPP lender in writing of the contemplated transaction. The PPP lender must approve the change of ownership transaction; however, the prior approval of the SBA may not be required. It is important for both the buyer and the seller in a transaction to closely follow the procedure and requirements provided by the SBA to ensure their transaction is in compliance. To learn more about the procedure and requirements as it relates to your transaction, see the SBA’s Procedural Notice 5000-20057 on PPP Loans and Changes of Ownership