PPP UPDATE – CHANGE IN OWNERSHIP OF PPP BORROWERS
The Small Business Administration (“SBA”) recently issued a Procedural Notice (the “Notice”) outlining the impact of “Changes of Ownership” of a PPP borrower (the “Borrower”) under the PPP program.
The key highlights of the Notice (linked here) include (i) the definition of “Change of Ownership,” (ii) PPP borrowers’ responsibilities towards their lenders, and (iii) cases wherein prior SBA consent is required before closing a qualified transaction resulting in an ownership change of a PPP borrower.
According to the Notice, a Change of Ownership occurs when:
a) at least 20 percent of the common stock or other ownership interest of a 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;
b) the Borrower sells or otherwise transfers at least 50 percent of its assets (measured by fair market value), whether in one or more transactions; or
c) Borrower is merged with or into another entity.
Borrowers, who wish to make any of the above ownership changes, must notify their lenders in writing of the contemplated transaction and seek approval prior to the closing. Such Borrowers must also provide their lenders with the required documentation, including, for example, a copy of the proposed agreement and other supporting documents. We advise you to review the Notice, contact your respective lenders, and review any guides or manuals your lenders may have published in order to comply with the new guidelines.
Lastly, the Notice also outlines some special scenarios wherein a prior SBA consent is also required in addition to that of the lender. For more details, please review the Notice.
If you have any questions about the above mentioned, please contact Christopher L. Rasmussen, Managing Partner, Inventus Law, PC., at firstname.lastname@example.org or Aakshita Bansal, Corporate Associate, Inventus Law, PC., at email@example.com.
Disclaimer: This Memo is being provided for information purposes only and is drafted entirely on the bases of public resources. Information contained on or made available herein is not intended to and does not constitute legal advice, recommendations, mediation or counseling under any circumstance. This information and your use thereof do not create an attorney-client relationship. You should not act or rely on any information provided herein without seeking the advice of a competent attorney licensed to practice in your jurisdiction for your particular business. We will continue to monitor and provide updates on any additional guidelines or rules pertaining to PPP Loan Forgiveness and Changes in Ownership in the near future.