PPP Loan - Change of Ownership

In an important development for M&A transactions in which the target company has taken PPP funds, the SBA today announced Friday afternoon that it will no longer require PPP lenders to obtain SBA prior approval for most “change of ownership” transactions.

Today’s announcement removes a significant impediment to M&A transactions, namely, that parties have struggled with long delays in obtaining SBA prior approval and often have been forced to simply return PPP funds in order to meet deal timelines. The SBA also announced new requirements, including that the borrower must (i) file for forgiveness and (ii) place all remaining PPP funds in escrow pending the forgiveness process. While escrowing PPP funds represents a burden on the borrower, it is certainly preferable to the alternative of returning the PPP funds.

Although the announcement signals SBA support for M&A transactions involving target companies that received PPP funds, the SBA also stated today that “regardless of any change of ownership, the PPP borrower remains responsible for … the certification of economic necessity,” indicating that the SBA remains steadfast in its intent to review the economic necessity certifications of borrowers during the six-year review period. One of the principal purposes of PPP loan insurance is to insure the accuracy of the borrower’s economic necessity certification and, in light of today’s announcement, this coverage may be particularly useful to parties to M&A transactions where the target has taken more than $2.0 million.

https://www.sba.gov/sites/default/files/###-###-#### /###-###-#### pdf