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PPP Loan Update — Changes of Ownership

By: Chad Emmert, CPA, CCIFP + Sara Northcutt, CPA

Effective October 2, 2020, the Small Business Administration (SBA) released required procedures for changes of ownership of an entity that has received Paycheck Protection Program (PPP) funds. Since its inception, the PPP has been subject to various updates and changes as the COVID-19 pandemic continues to affect businesses. This new procedural notice clarifies what is considered a change in ownership and how borrowers should seek approval from either the lender or SBA.

We’ve outlined the essentials for borrowers to reference below as they explore changes in ownership and loan forgiveness.

Defining a Change in Ownership

The SBA has defined three different instances as a change in ownership:

  • At least 20 percent of the common stock or other ownership interest is sold or transferred in one or more transactions following the date of the loan approval;
  • At least 50 percent of the entity’s assets (measured by fair market value) are sold or transferred in one or more transactions following the date of the loan approval; or,
  • The PPP borrower is merged with or into another entity.

Process for All Changes in Ownership

Should a borrower pursue a change of ownership before the PPP loan is satisfied, the SBA requires the lender to be notified in writing and provided a copy of any proposed agreement before the closing of any transaction.

If, prior to closing, the PPP note is fully satisfied, there are no restrictions on the change of ownership.

Lender and SBA Approval

In instances where the change of ownership is structured as a sale or transfer of common stock (or other ownership interest) or as a merger and the change in ownership is 50 percent or less, the lender may approve the transaction without SBA approval. This also applies to changes of ownership structured as asset sales where 50 percent or more of the assets, measured by fair market value, are to be sold.

It’s worth noting that to qualify the borrower must put an amount equal to the full amount of the loan into an interest-bearing escrow account under the lender’s control and must submit a completed forgiveness application with all supporting documentation.

If the borrower cannot meet the above requirements to allow the PPP lender to approve the transaction, the SBA must provide approval. This requirement includes changes in ownership where the loan is not fully satisfied.

To request SBA approval, the borrower must provide:

  • Reasoning as to why the PPP borrower cannot fully satisfy the PPP note or escrow funds;
  • Details of the requested transaction;
  • A copy of the executed PPP Note; and,
  • Any letter of intent and the purchase or sale agreement.

Understanding the PPP with Aldrich

The entire Aldrich team is monitoring the PPP and SBA updates closely. We’ll be updating our PPP Resources diligently to keep you apprised of new requirements and guidance as they are released. If you have any questions about changes in ownership for your organization, reach out to your Aldrich Advisor.

This article was written with the most current information as of October 9, 2020. Please check back for future updates.

Meet the Author
Partner

Sara Northcutt, CPA

Aldrich CPAs + Advisors LLP

Sara Northcutt joined the firm in 2005 and has more than a decade of experience working on a wide range of clients, including financial lending, private equity, real estate, and other closely held businesses. Sara specializes in multi-state tax compliance. Sara received her Bachelor of Arts degree from Vanguard University of Southern California and did her… Read more Sara Northcutt, CPA

Sara's Specialization
  • Closely-held businesses
  • Certified Public Accountant
  • Strategic tax planning and compliance
Connect with Sara
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