On October 2, 2020, the Small Enterprise Administration (SBA) launched a Procedural Notice on Paycheck Safety Program Loans and Modifications of Possession.
The Procedural Discover units forth a PPP borrower’s obligations within the occasion of a change of possession, together with clear steerage on when SBA prior approval is required and the procedures to request such approval.
Change in possession definition
For functions of the PPP, a change in possession will likely be thought-about to have occurred when one in all these circumstances are met:
1. Not less than 20 p.c of the frequent inventory or different possession curiosity of a PPP borrower is offered or in any other case transferred, whether or not in a number of transactions, one together with to an affiliate or an current proprietor of the entity.
2. The PPP borrower sells or in any other case transfers a minimum of 50 p.c of its property (measured by honest market worth), whether or not in a number of transactions
3. A PPP borrower is merged with or into one other entity.
PPP borrower obligations
No matter any change of possession, the PPP borrower stays accountable for:
- Efficiency of all obligations below the PPP mortgage.
- The certifications made in reference to the PPP mortgage utility, together with the certification of financial necessity.
- Compliance with all different relevant PPP necessities.
Moreover, the PPP borrower stays accountable for acquiring, making ready, and retaining all required PPP types and supporting documentation and offering these types and supporting documentation to the PPP lender or the lender servicing the PPP mortgage or to the SBA upon request.
Previous to the closing of any change of possession transaction, the PPP borrower should notify the PPP lender in writing of the contemplated transaction and supply the PPP lender with a duplicate of the proposed agreements or different paperwork that may perform the proposed transaction.
SBA approval requirement
The character of the procedures to be adopted will differ to some extent relying on the standing of the PPP mortgage instantly previous to a change of possession transaction.
As an illustration, if the PPP mortgage is absolutely glad previous to closing the sale or switch, there aren’t any restrictions. The PPP mortgage will be glad by both compensation in full or full completion of the PPP mortgage forgiveness course of.
If the PPP mortgage shouldn’t be glad previous to closing the sale or switch, SBA approval is NOT required within the following eventualities:
1. If the change of possession is structured as an possession sale and both (i) consists of fifty% or much less of the possession curiosity of the PPP borrower or (ii) the PPP borrower completes and submits a forgiveness utility along with any required supporting documentation and establishes an escrow account managed by the PPP lender equal to the excellent stability of the PPP mortgage.
2. If the change of possession is structured as an asset sale for 50% or extra of the PPP borrower’s property (measured by honest market worth) and the PPP borrower completes and submits a forgiveness utility along with any required supporting documentation and establishes an escrow account managed by the PPP lender equal to the excellent stability of the PPP mortgage.
SBA prior approval IS required if a change of possession of a PPP borrower doesn’t meet the circumstances described above.
Procedures for requesting SBA approval
To acquire the SBA’s prior approval of requests for modifications of possession, the PPP lender should submit a request to the SBA that features:
- The rationale the PPP borrower can not absolutely fulfill the PPP mortgage or set up the required escrow of funds previous to closing the sale or switch.
- The main points of the requested transaction.
- A duplicate of the executed PPP mortgage.
- Any letter of intent and the acquisition or sale settlement setting forth the obligations of the events to the transaction (borrower, vendor [if different than borrower], and purchaser).
- Disclosure of whether or not the client has an current PPP mortgage.
- An inventory of all homeowners of 20 p.c or extra of the buying entity.
Different gadgets of curiosity
Within the occasion of a change of possession structured as an asset sale, SBA approval will likely be conditioned on the client assuming all the PPP borrower’s obligations below the PPP mortgage.
The acquisition or sale settlement should embody applicable language relating to the idea of the PPP borrower’s obligations below the PPP mortgage by the client.
Within the occasion of a change of possession structured as an possession sale, the unique PPP borrower will stay topic to all obligations below the PPP mortgage.
How we may also help
We may also help you navigate the ever-changing PPP forgiveness panorama and any possession modifications involving entities with PPP loans. Whether or not you want only a brief session or full help, we’ve got a forgiveness package deal possibility for you.
Our PPP professionals are additionally accessible to offer academic webinars to commerce teams, affiliated firm teams, and banking shoppers with PPP loans. CLA’s Jack Rybicki assisted with the preparation of this text.
Michael Bosma, CPA, is Principal-in-Cost of the Reno workplace of CliftonLarsonAllen LLP. His NNBW column, “Masking Your Property,” focuses on efficient planning methods for each enterprise proprietor. He’s additionally the host of “Bosma on Enterprise,” which airs Saturdays at 10 a.m. on Newstalk 780 KOH. Attain him for remark at email@example.com.