Are you considering a change of ownership

Updated: Nov 17, 2020

The SBA has released additional guidance for those holding a PPP loan.

The Small Business Administration (SBA) has released additional guidance regarding change of ownership procedures for borrowers holding a PPP loan.  Many businesses in this situation have been attempting to push the forgiveness process forward, with the assistance of their lenders, due to an impending transfer of ownership.


What is considered a change of ownership?


According to the notice, a “change of ownership” occurs under the following situations:

  • 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

  • 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

  • A PPP borrower is merged with or into another entity

All sales or transfers that have occurred since the date of PPP loan approval must be aggregated.  For publicly-traded PPP 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.


If you obtained a PPP loan and are planning a transaction involving a change of ownership, what procedures must be followed?


Regardless of the change of ownership type, PPP borrowers will retain responsibility for the following, even after the change of ownership:

  • Performance of all obligations under the PPP loan

  • The certifications made in connection with the PPP loan application, including the certification of economic necessity

  • Compliance with all other applicable PPP requirements

  • Obtaining, preparing, and retaining all required PPP forms and supporting documentation, and

  • Providing the required forms and supporting documentation to the PPP lender or lender servicing the PPP loan, or to the SBA upon request

In addition, there are different procedures depending on the circumstances of the change of ownership, as set forth below. In all cases, the PPP lender is required to continue submitting the monthly 1502 reports until the PPP loan is fully satisfied.


If the PPP loan is fully satisfied, there are no restrictions on a change of ownership.  A PPP loan is considered fully satisfied if either the loan is paid in full or the loan forgiveness process is completed (and the SBA has remitted funds to the PPP lender in full satisfaction of the PPP loan or the PPP borrower has repaid any remaining balance on the PPP loan), prior to the change in ownership.


If the PPP loan is not fully satisfied, the procedures depend on the structure of the change in ownership.  Under certain cases, the PPP lender may approve the change of ownership and SBA’s prior approval is not required.  This includes:

  • Transactions involving the sale or transfer of 50% or less of common ownership of the PPP borrower.

  • Transactions involving over 50% of the PPP borrower’s common ownership or assets if the borrower has completed the forgiveness process and established an escrow, controlled by the PPP lender, with funds equal to the outstanding balance of the PPP loan.

Transactions not meeting the above criteria require SBA approval.  If required, the SBA is provided 60-days to make a review and provide a determination.  In addition, the SBA may require a risk mitigation analysis, and for those transactions where there is a sale of 50% or more of the FMV of assets, the purchasing entity must assume all PPP borrower’s obligations, including responsibility for complying with the assumed loan terms.


Please reach out to us with any questions.

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Cincinnati, OH 45242

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