MPL General Counsel Corner – Time to Sell – What about PPP?

June 07, 2021

What about the PPP and its impact on a transaction?  This topic has come up on several occasions recently as M&A in the privately held business world remains strong and looks to pick up more.  The Department of Treasury put out a procedural notice on October 2, 2020 on changes of control and the PPP.  However, I keep hearing of deals where the closing gets delayed because they forgot to take into account the PPP loan of the seller.  Below are the key guidelines to keep in mind:

  • What is a change of ownership?
    • At least 20% of the common stock or ownership of the PPP borrower is sold or transferred;
    • The PPP borrower sells or transfers at least 50% of its assets (FMV); or
    • The PPP borrower is merged with or into another entity
  • What should be done with the PPP loan prior to closing?
    • PPP Note is Satisfied in Full – This is the Captain Obvious solution, so I won’t spend any time on this one
    • PPP Note is Not Fully Satisfied – SBA Prior Approval Not Required Conditions
      • Sale or transfer is for less than 50% of the common stock or ownership interest of the PPP borrower
      • Sale or transfer is an asset sale for more than 50% of the PPP borrower’s assets
      • PPP borrower has submitted its forgiveness application and an escrow account is set up to hold the PPP borrower funds for the amount due on the PPP loan
    • PPP Note is Not Fully Satisfied – SBA Approval Required
      • PPP Borrower does not meet the conditions described under the “SBA Approval Not Required” above (Captain Obvious at it again)
      • PPP Borrower must (1) tell the SBA why it cannot fully satisfy the loan; (2) submit the details of the transaction; (3) submit a copy of the executed PPP note; (4) submit any LOI and Purchase/Sale Agreement; (5) disclose if the Buyer has an existing PPP loan and SBA number; and (6) provide a list of all owners of 20% or more of the purchasing entity
      • If the SBA approves the transaction, the purchaser must assume the PPP obligations and the applicable Purchase/Sale Agreement must have language detailing the assumption;
  • What are the obligations of the PPP borrower and PPP lender post-closing?
    • The PPP borrower (or new owner in the case of the merger) is still subject to all the post-PPP loan obligations;
    • The PPP lender must provide the SBA with the following information within 5 business days of completion of the transaction
      • Identity of the new owners of the common stock or other ownership interest
      • New owner’s ownership percentages;
      • Tax ID # for any owners holding 20% or more of the equity in the business; and
      • Location of and amount held in escrow if applicable

As you can see, there are a number of things that must be considered when you are selling or buying a business with a PPP loan.  Please make sure this critical component is considered as early as possible in the due diligence of a transaction.  Your professional service providers are the best source of assistance with this potential issue.

Here are a few other things that may be of interest:

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As always, please don’t hesitate to email myself (, Andy Miller (, Christian Miller (, Erik Spurlin ( or anyone in our office with questions or comments.  


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