Insights

MPL General Counsel Corner – Business M&A Gets A Little Light At The End of the PPP Tunnel

November 03, 2020

On Friday, the SBA issued a Procedural Notice on PPP loans and Changes of Ownership.  While there are still a number of questions, businesses involved in M&A can at least see the light at the end of the PPP tunnel.  Below are some of the key points that were provided:

  • Change of Ownership Definition – 20% or more of stock is sold or transferred, 50% or more of the assets are sold or transferred, or a merger occurs;
    • PPP borrower remains responsible regardless of the sale or transfer;
  • Transactions requiring only Lender Approval – sale of < 50% of the equity, sale of >50% of the assets;
    • In each case, the PPP borrower must apply for forgiveness
    • The funds owed must be put into escrow with the PPP lender and will be released once the forgiveness decision is received from the SBA
  • Transactions requiring Lender and SBA approval – pretty much anything that does not fit into the prior point (see the attached document for more details)
  • “Captain Obvious” provision:  Any PPP loans that have already been forgiven or repaid prior to the M&A transaction do not have any change of ownership restrictions.

The bottom line is that most transactions will probably fall into the second bullet point above.  While it is not an ideal solutions, it is at least a pathway to close on a transaction.

The two big questions I have (and there are definitely more, please share if you think of them):

  • How will the lenders treat these guidelines?  It sounds like more administrative work for lenders especially if small PPP loans will ultimately be forgiven in another stimulus package.
  • What are the decision metrics needed for transactions that require SBA approval?

 A few other items we thought were of interest:  

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