New PPP Guidance Regarding Business Ownership Changes

Under new Small Business Administration (SBA) guidance, certain Paycheck Protection Program (PPP) borrowers might face new requirements. The SBA Procedural Notice (Notice) provides information concerning changes of ownership transactions for entities that received PPP funding. Notably, the Notice addresses a change in ownership interest of the PPP borrower (borrower) itself. It does not specifically address changes in ownership at the level of the borrower’s possible affiliates.

Released on October 2nd, 2020, the Notice establishes categories of transactions, some that may require prior approval of the SBA. The contents of the Notice are effective for transactions that close on or after the date of the Notice’s release.

Overview of the Procedural Notice

According to the Notice, “change of ownership” occurs when:

  • the borrower sells or transfers at least 20% percent of the common stock or other ownership interest;
  • the borrower sells or otherwise transfers at least 50% of its assets; or
  • a borrower merges with or into another entity.

Prior to any change of ownership closing, a borrower must notify its PPP lender (lender) of the transaction. The borrower must also provide the lender any proposed agreements or documentation that would affect the transaction.

Borrowers must also provide notice and obtain the SBA’s consent prior to the change of ownership transaction unless:

  • the PPP loan has been fully satisfied through repayment;
  • the sale or transfer is 50% or less of the common stock or other ownership interest of the borrower; or
  • the borrower has completed a forgiveness application reflecting use of the PPP loan (loan) and established an interest-bearing escrow account. The escrow account would include the full amount of the balance of the loan.

Regardless of any change of ownership, the original borrower remains responsible for:

  • the performance of all obligations under the loan,
  • the accuracy of the certifications made in connection with the PPP loan application, including the certification of economic necessity; and
  • compliance with all other applicable PPP requirements.

Additionally, the borrower must obtain, prepare, and retain all required PPP forms and supporting documentation. The borrower must also provide those documents to the lender or the SBA upon request.

 Employer Takeaways

Although the guidance clarifies when a change in ownership requires SBA approval, borrowers remain subject to all PPP loan obligations. The guidance states that the SBA reserves all remedies available for fraud, false statements, and unauthorized uses of prior funding. Before moving forward with change of ownership transactions, employers should consult with legal or financial authorities to verify proper compliance.


NOTE: The details in this blog are provided for informational purposes only. All answers are general in nature and do not constitute legal advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The author specifically disclaims any and all liability arising directly or indirectly from the reliance on or use of this blog.
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