PPP: SBA issues guidance on ownership changes and easy full forgiveness for small loans

Following Congress’s creation of the Paycheck Protection Program (PPP) under the Small Business Administration Loan Program 7 (a), Congress burdened PPP loans with numerous rules, regulations and standard operating procedures applicable to loans 7 (a), many of these may not be familiar to typical PPP borrowers as well as lenders who have not historically made many loans 7 (a). One of those 7 (a) requirements is that the SBA must approve all change in ownership of a borrower in the first year after loan disbursement 7 (a) in accordance with SBA standard operating procedure 50 57.

With the PPP initially scheduled to last only until June 30, 2020, with all loan proceeds to be spent within 8 weeks of receiving a PPP loan, this has not been a major issue for many borrowers. PPPs who might have wished to sell their businesses. However, due to the law on the flexibility of the paycheck protection program promulgated on June 5, 2020, with the extension of the period covered to 24 weeks and the extension of the period granted to the lender (60 days) and to the SBA to consider a pardon request. (90 days), the SBA approval requirement has become more of a concern, especially given the SBA’s informal position that it preferred that all borrowers wait until forgiveness decisions have been made before making change ownership. Ironically, the SBA had imposed this requirement only relatively recently through a Notice of Procedure (Control Number: 5000-19009) issued on April 1, 2019.

For several months, the SBA remained evasive about requests for approval of changes in ownership from PPP borrowers. However, on October 2, 2020, the SBA issued a Notice of Procedure (Control Number: 5000-20057) providing formal guidance on changes of ownership under the PPP (but not other 7 (a) loans), which offers some relief to PPPs. borrowers seeking to transfer all or part of their business through a sale of shares or assets. Unsurprisingly, the notice of procedure provides that no approval is required if the borrower has repaid their PPP loan in full or if they have requested a remission with a final decision on the remission having been made (such as evidenced by the payment of the SBA to the lender) with either the total amount of the loan forgiven, or the borrower having repaid any amount not remitted.

For borrowers who have outstanding amounts on their PPP loans, the process is a bit more complicated and depends, to some extent, on the percentage of the business sold. SBA approval is not required for (i) transfer (including merger) of 50% or less (when combined with all other transfers since the date of approval of the PPP loan borrower) property interest of the borrower, or (ii) the borrower submits a completed forgiveness request to their lender and sequesters the full PPP loan amount with the lender. In the latter case, the sequestered amount must be used to repay any unsettled portion of the PPP loan.

Likewise, SBA approval is not required in the event of (i) transferring less than 50% of the borrower’s assets, or (ii) the borrower submits a completed forgiveness request to their lender. and escrow the full amount of the PPP loan. with the lender. In the latter case, the sequestered amount must be used to repay any unsettled portion of the PPP loan.

The borrower should seek SBA approval before making any other change in ownership, whether it is a sale of shares or assets. As part of the approval process, the borrower must submit certain information to the SBA (through their lender), including the following:

  • A statement explaining why the borrower is unable to structure the transaction to meet the requirements of a transfer without SBA approval, including a statement explaining why any required escrow cannot be funded from the proceeds of the transaction.
  • Details of the proposed transaction, including a copy of any letter of intent or purchase agreement relating to the transaction.
  • Disclosure of any PPP loans held by the assignee (s) prior to the proposed transaction.
  • A list of all owners of 20% or more of any transferee entity.

The Notice of Procedure provides that the SBA will render a decision within 60 days of receiving a complete application.

Easier forgiveness reductions

On October 8, 2020, the SBA and the Treasury issued an interim final rule eliminating discount reductions resulting from either a reduction in the number of full-time equivalent employees of a borrower, or individual employees who pay if the loan of the borrower (when aggregated with PPP loans to any of its affiliates) does not exceed $ 50,000. To make this change, the SBA and Treasury have also released a new remission request – the SBA 3508S form – which is both shorter and should be easier to complete for qualifying borrowers than the SBA 3508EZ form. Borrowers who qualify to use SBA Form 3508S should always provide information to prove that the PPP loan proceeds have been used in accordance with PPP requirements in the same manner as with SBA Form 3508 or SBA Form 3508EZ (for (example, providing payroll reports and quarterly employment income tax returns to justify salary costs).

In issuing the relaxed requirements, the SBA and the Treasury noted that although a significant number of loans of $ 50,000 or less have been made under the PPP, the total amount of these loans is relatively small compared to the amount. total of all PPP loans made and, therefore, was a de minimis exemption permitted under the CARES Act.


Jeffrey Wagner, shareholder in the Jackson, Mississippi office of Baker Donelson, focuses his practice on public / government law, business transactions and insurance regulation. He is reachable [email protected].


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