Effective October 2, 2020, the SBA issued a Procedural Notice, Control No. 5000-20057, regarding Paycheck Protection Program (PPP) loans and changes of ownership. The SBA Notice outlines the required procedures for changes of ownership involving an entity that has received PPP funds.
The SBA defines change of ownership as:
- At least 20% of the ownership interest of a PPP Borrower is sold or transferred, whether in one or multiple transactions, including to an affiliate or to an existing owner of the PPP Borrower;
- At least 50% of the PPP’s Borrowers assets are sold or transferred, as measured by the fair market value; or
- The PPP Borrower merges with or into another entity.
What you need to do
If you have a PPP loan and plan on changing ownership, you need to do the following:
- Notify your Bank in writing of the sale and if it will be a full or partial change of ownership or an asset sale or stock sale
- Provide the list of items required by your Bank
- Apply for Forgiveness
- Open an escrow account with your Bank in the full amount of the PPP loan (the FULL amount must be tendered prior to the deal closing).
Once the SBA has forgiven the PPP loan, your Bank will remit the escrowed funds minus any amount that was not forgiven and any accrued interest. Keep in mind, your Bank has up to 60 days to submit a forgiveness application to the SBA and the SBA has 90 days to remit funds to the bank so remittance can take up to five months.
