On October 2, 2020 the Small Business Administration (“SBA”) issued a Procedural Notice outlining what constitutes “Changes of Ownership” with respect to Paycheck Protection Program (“PPP”) borrowers, and the conditions in which prior SBA approval is required for such changes. The SBA will consider a “Change of Ownership” to have occurred upon one of the following events:
- At least 20% of the common stock or other ownership interest of a PPP borrower (including a publicly traded entity) is sold or otherwise transferred, whether in one or more transactions including to an affiliate or an existing owner of the entity.
- The PPP borrower sells or otherwise transfers at least 50% of its assets (measured by fair market value), whether in one or more transactions.
- A PPP borrower is merged with or into another entity.
PPP Lenders are required to submit a request to the SBA Loan Servicing Center and to obtain approval prior to authorizing a Change of Ownership transaction unless the Change of Ownership is structured as:
- A sale or transfer of 50% or less of the common stock or other ownership interest, or a sale or transfer of more than 50% if made contemporaneously with a PPP loan forgiveness application and escrow to cover the PPP loan balance.
- An asset sale of 50% or more of its assets if made contemporaneously with a PPP loan forgiveness application and escrow to cover the PPP loan balance.
In all cases, PPP Lenders are required to notify the SBA within 5-days of the Change of Ownership transaction and must continue submitting the monthly 1502 reports until the PPP loan is fully satisfied.