Last week, the SBA released a procedural notice with information regarding the sale (or change of ownership) of small businesses with PPP loans. This may complicate sales of such small businesses. The borrowers must notify their PPP lenders of any change in ownership, and take note that certain transactions may require the consent of the SBA. Change in ownership is defined as occurring when at least 20% of stock or other ownership interest is sold or transferred, at least 50% of assets are sold or transferred, or when a borrower merges with another entity. The borrower must notify their lender in writing and provide a copy of the agreement.
If the PPP loan has been repaid or the SBA has reimbursed the lender for the forgiveness amount and the sale is 50% or less of ownership interest or less than 50% of assets are sold, then SBA consent does not need to be acquired. But SBA approval may be necessary when the PPP loan has not been repaid or forgiven. The notice also outlines lender responsibilities for minority and majority transactions and details when and how the SBA needs to be notified.
Any new owner of a business will still be held to the SBA’s earlier determination of what PPP funds are authorized to cover. With any transfer of stock or other ownership interest or merger, the borrower and new owner must keep PPP funds and expenses separate and accounted for to comply with those SBA PPP requirements.
Your attorney is here to help you navigate the complex requirements set forth by the SBA as you request and receive PPP funds, and in the event that you buy, sell, or merge with a small business which is a current recipient of those funds. Davis Miles McGuire Gardner will help your small business be successfully and legally viable during this economic time of uncertainty.
During this COVID-19 business challenge, we have helped dozens of businesses with the PPP process. If we can help you, give us a call. (480) 733-6800.