PPP Loan Hurting Your Business Sale?

I Want To Sell But Have A PPP Loan 

If your business has a PPP loan and you are selling all or part of the business, you may need approval from the SBA or the bank that handled your loan. You may also need to put the amount of any unforgiven portion into escrow at close. 

Responsibility After Close

According to the SBA Procedure Notice 2000-20057 dated October 2020, the PPP borrower remains responsible for all obligations of the PPP loan after close.  That includes obtaining, preparing and retaining all PPP forms and supporting material and providing those forms to the PPP lender that is servicing the loan.

Notification Requirements

Prior to closing or any change of ownership, the PPP borrower must notify the PPP lender in writing of the transaction and provide the lender with all proposed agreements affecting the transaction including the Purchase Agreement.

No Restrictions On Change of Ownership IF

• The PPP loan is repaid in full
• The loan forgiveness application is processed and the SBA has provided full satisfaction of the loan
• The loan forgiveness application is processed and the PPP borrower has repaid any remaining balance on the PPP loan
  

Prior SBA Approval of Sale Not Required IF

1. In a Common Stock Sale or Merger:
   1. The sale is 50% or less of the common stock or other ownership interest of the PPP borrower OR
   2. The PPP borrower completes and submits forgiveness application reflecting use of all PPP funds with required documentation to the PPP lender, and the lender sets up an interest-bearing escrow account with funds equal to the outstanding balance of the PPP loan plus interest.
   3. The former borrower and in some instances, the successor to the PPP borrower will remain obligated under the PPP loan.
   4. PPP loan funds and expenses may not be co-mingled after a merger or sale if the buyer also has a PPP loan.
   5. The PPP Lender needs to notify the SBA within 5 business days of the transaction close.
2. In an Asset Sale:
   1. A PPP borrower may sell 50% or more of its assets only if the PPP borrower completes and submits forgiveness application reflecting its use of all of the PPP loan proceeds with supporting documentation to the PPP lender AND
   2. The PPP lender establishes an interest-bearing escrow account controlled by the PPP Lender with funds equal to the outstanding balance of the PPP loan.
   3. The former borrower and in some instances, the successor to the PPP borrower will remain obligated under the PPP loan.
   4. The PPP Lender needs to notify the SBA within 5 business days of the transaction close.
      

This blog post does not include all of the stipulations and procedures for handling a transaction with a PPP Loan.  For More Details of the Procedure and Information regarding the sale of a business with an outstanding PPP loan visit SBA.gov.