PPP Loans and Changes of Ownership

On October 2, 2020, the Small Business Administration (SBA) issued a Procedural Notice which addresses Paycheck Protection Program (PPP) loans and changes of ownership. The Notice provides guidance and clarification beneficial to loan borrowers needing to move through the forgiveness process quickly due to an impending change in ownership.

For purposes of the PPP, the Notice provides that a “change of ownership” will be considered to have occurred when:

(1) 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;

(2) the PPP borrower sells or otherwise transfers at least 50%of its assets (measured by fair market value), whether in one or more transactions; or

(3) a PPP borrower is merged with or into another entity.

A copy of the SBA Procedural Notice, which includes detailed information regarding the responsibilities of the PPP loan borrower and the procedures to be followed (including whether the consent of the SBA is required for a “change in ownership”) is available here: SBA Procedural Notice 5000-20057.

Note: For purposes of determining a change of ownership, all sales and other transfers occurring since the date of approval of the PPP loan must be aggregated to determine whether the relevant threshold has been met. For publicly traded borrowers, only sales or other transfers that result in one person or entity holding or owning at least 20% of the common stock or other ownership interest of the borrower must be aggregated.