If you are contemplating selling your business and you or your company received a Paycheck Protection Program (PPP) loan, you should be aware of the new Small Business Administration (SBA) changes in ownership procedures.
Effective October 2, 2020, SBA Procedural Notice Control No.: 5000-20057 provides provisions that every seller with a PPP loan must follow prior to the closing of a change of ownership. A change of ownership includes an asset sale, a stock sale and a sale of any other ownership interests. Immediately following the new SBA Procedural Notice, Berman Fink Van Horn represented two clients who closed on a change of ownership. Fortunately, neither closing was delayed because the clients were made aware of and complied with the SBA Procedural Notice.
Selling your Business with a PPP Loan
The SBA Procedural Notice will not apply if the PPP loan has been satisfied prior to the closing of the change of ownership.
However, if the PPP loan is not fully satisfied prior to closing of the change of ownership, then the PPP borrower will need SBA approval for the change of ownership or the PPP borrower will need to:
(a) complete a forgiveness application to document the use of all of the PPP loan proceeds and deliver the application and any required supporting documentation to the PPP lender, and
(b) establish an interest-bearing escrow account controlled by the PPP lender with funds equal to the outstanding balance of the PPP loan.
Be sure to take a prudent approach when selling your business with a PPP loan. As always, let me know if I can help.