Sale of Entity that Received Paycheck Protection Program Funds

If you’re buying or selling an entity – or its assets – you should be aware of a new notice from the Small Business Administration (“SBA”).

If the seller has received Paycheck Protection Program (“PPP”) funds, it must notify the funds lender that the seller intends to enter into a sales transaction that would constitute “a change of ownership” and must send the lender copies of the proposed documents effectuating the sale.

    For purposes of the PPP, a “change of ownership” is deemed to have occurred when (1) at least 20 percent of the common stock or other ownership interest of the PPP borrower is sold or otherwise transferred, whether in one or more transactions, including to an affiliate or an existing owner of the entity, (2) 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 (3) a PPP borrower is merged with or into another entity.

Generally speaking, if the PPP loan has been repaid, there are no restrictions on a change of ownership. If not, the prior approval of the SBA will be needed if more than 50% of the equity interest in the seller or 50% or more of the assets are being sold.

In any event the PPP borrower will remain responsible for repaying the PPP loan and will otherwise be responsible for all obligations under the loan.

As always, if you have any questions, please reach out.

Alan N. Walter