SBA Issues Guidance for PPP Lenders on Consents Required for Change of Ownership of PPP Borrowers | PilieroMazza SARL
On Friday, October 2, the U.S. Small Business Administration (SBA) released guidance for lenders administering Paycheck Protection Program (PPP) loans regarding SBA involvement (if applicable) when a PPP borrower experiences a transaction resulting in a change of ownership. This guide addresses several questions that borrowers and PPP lenders have grappled with over the past few weeks and provides some insight into expectations regarding when SBA consent is required and what the consent process entails. This advice is particularly applicable to PPP borrowers (and their lenders) who are considering equity financings, mergers, equity sale transactions, reorganizations, or asset sale transactions while a PPP loan remains outstanding. Classes.
Recent guidelines state that a “change of ownership” for the purposes of a PPP loan means:
- at least 20% of the borrower’s common stock or equity is sold or transferred in one or more transactions (including to an affiliate or other existing owner);
- the sale or transfer of at least 50% of the borrower’s assets in one or more transactions; and
- the merger of the borrower with or into another entity.
If a change in ownership of a borrower occurs before the PPP loan has been repaid in full or the PPP loan has been canceled, the funds being returned to the PPP lender, then the prior consent of the PPP lender and , under certain circumstances, the SBA, are required.
Situations where alone The consent of the PPP lender (not the consent of the SBA) for a change of ownership is required are as follows:
- if the change in ownership is structured as a capital transfer or merger and involves the sale or transfer of 50% or less of the common stock or other interest of the borrower, or
- if prior to closing, the borrower submits a complete loan forgiveness request and establishes an escrow account holding an amount equal to the PPP loan balance with the PPP lender as security for any amount that does not qualify for forgiveness.
The two The PPP lender and the consent of the SBA are required for a change of ownership transaction that does not meet any of these criteria. To obtain SBA consent, the PPP lender must submit certain information to the SBA, including:
- why a PPP borrower cannot repay the loan or block the funds;
- details of the transaction, and a copy of the applicable letter of intent or proposed final agreement for the transaction setting out the borrower’s obligations;
- if the buyer already has a PPP loan; and
- a list of all owners of 20% or more of the buyer’s equity.
SBA guidelines state that in situations where SBA consent is required, the SBA will review and make a decision within 60 calendar days of receiving a complete application.
Note that even in situations where only the consent of the PPP lender and not that of the SBA 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 of ownership, taxes Identification numbers of all owners over 20% of the equity of the business, as well as the location and amount of funds in the escrow account, if necessary.