Change in Ownership of Entity that Received PPP Funds

By Frank Milone, CPA, Founding Partner, Assurance & Advisory Services
Oct 13, 2020

On October 2, 2020, the U.S. Small Business Administration (“SBA”) published an SBA Procedural Notice (“SBA Notice”) that provides a framework to determine whether SBA consent is required for various changes of ownership of an entity that has received Paycheck Protection Program (PPP) funds.  

Change in Ownership 

A “change of ownership” is deemed to have occurred when:  

  • The sale or transfer of 20% or more of the common stock or other ownership interest of a PPP borrower (including a publicly traded entity), whether in one or more transactions since the approval of the PPP loan, including to an affiliate or an existing owner of the entity. 
  • The sale or transfer of 50% or more of the assets of a PPP borrower (measured by their fair market value), whether in one or more transactions.  
  • The merger of a PPP borrower with or into another entity.  

** It should be noted that a change in ownership may arise in a variety of ways including venture capital or private equity financing, a business combination, or equity transfer in connection with estate or financial planning by equity owners of a PPP borrower.  You should consult your legal and accounting advisors to understand if a transaction prior to the SBA Notice or one being contemplated requires action.**   

PPP Lender Notice and Approval 

Prior to closing any transaction involving a change of ownership, the PPP Borrower must provide written notice of the proposed transaction to the PPP lender along with a copy of the agreement of the proposed transaction.   

** There are no restrictions on change in ownership if the PPP borrower has satisfied the PPP Note  which is defined as (a) repaid the loan in full or (b) completed the loan forgiveness process and the SBA has remitted funds in full satisfaction of the PPP Note or the PPP Borrower has paid any remaining amounts due under the PPP loan. ** 

SBA Approval – Exemptions   

If the following conditions are met, SBA prior approval is not required and the PPP Lender may approve the change in ownership: 

  1. Stock Sale: 
    1. Change in ownership is of fifty percent (50%) or less of the ownership interest of the PPP Borrower 
      OR
    2. PPP Borrower completes a forgiveness application and establishes an interest-bearing escrow account controlled by the PPP Lender with funds equal to the outstanding balance of the PPP loan.   
  1. Asset Sale (Note: SBA approval is not required for less than 50% asset sale): 
    1. Change in ownership of fifty percent (50%) or more of its assets (measured at fair value) of the PPP Borrower
      AND
    2. PPP Borrower completes a forgiveness application and establishes an interest-bearing escrow account controlled by the PPP Lender with funds equal to the outstanding balance of the PPP loan.   

SBA Approval – If Required 

If a change of ownership of a PPP Borrower does not meet the requirements for exemption set forth above, prior SBA approval is required. To obtain such approval, the PPP lender must submit various documentation and disclosures to the SBA. The SBA must provide its determination within 60 calendar days of receipt of a complete request.  

Understanding Your Responsibilities 

Regardless of a change of ownership, the PPP Borrower will remain responsible for all obligations and requirements under the PPP loan, including the certifications made related to the PPP loan. Additionally, the PPP Borrower remains responsible for obtaining, preparing, and retaining all required PPP forms and supporting documentation and providing this information to the PPP lender or to the SBA upon request.