On Friday, October 2, the U.S. Small Business Administration (SBA) issued guidance for lenders administering loans under the Paycheck Protection Program (PPP) regarding what involvement by the SBA (if any) is required when a PPP borrower undergoes a transaction resulting in a change in ownership. This guidance addresses several questions with which PPP borrowers and lenders have been struggling over the past several weeks and provides clarity around what the expectations are for when SBA consent is required and what the consent process entails. This guidance is especially applicable for PPP borrowers (and their lenders) who are contemplating equity-based financings, mergers, equity sale transactions, reorganizations, or asset sale transactions while a PPP loan remains outstanding.
The recent guidance clarifies that a “change in ownership” for PPP loan purposes means:
If a change in ownership of a borrower occurs before either the PPP loan has been repaid in full or the PPP loan has been forgiven, with funds remitted to the PPP lender, then the prior consent of the PPP lender and, in certain circumstances the SBA, are required.
Situations where only PPP lender consent (and not SBA consent) for a change in ownership is required are as follows:
Both PPP lender and SBA consent are required for a change in ownership transaction that does not satisfy either of these criteria. To obtain SBA consent, the PPP lender must submit certain information to the SBA, including:
The SBA guidance states that in situations where SBA consent is required, the SBA will review and provide a determination within 60 calendar days of receipt of a complete request.
Note that even in situations where only the PPP lender’s consent and not SBA consent is required prior to closing, the PPP lender is still required to provide information to the SBA regarding the transaction, including the identity of the new owners and their percentage ownership, tax ID numbers of all owners of more than 20% of the equity of the business, and the location and amount of funds in the escrow account, if required.