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SBA Provides Clarification on PPP Borrower M&A Transactions

October 12, 2020

On October 2, 2020, the Small Business Administration (SBA) published SBA Procedural Notice (5000-20057), providing clarifying guidance concerning the required procedures for changes of ownership of an entity that received Paycheck Protection Program (PPP) funds.

Under the old guidance, PPP lenders were required to obtain SBA “prior approval” before a change of ownership could take place. This requirement caused significant M&A deal delays and even forced businesses to repay PPP loans to meet transaction-closing deadlines. The new guidance, however, modifies the previous requirements and provides much-needed clarity on the preapproval process for ownership changes prior to PPP loan forgiveness or repayment.

A “change of ownership” is defined by the SBA as:

  1. A sale or transfer of 20% or more of the common stock or ownership interest of a PPP borrower
  2. A PPP borrower selling or transferring at least 50% of its assets (in one or more transactions)
  3. A PPP borrower merging with or into another entity


Regardless of whether SBA preapproval is required for a change in ownership, the PPP borrower remains responsible for all performance obligations and certifications made in connection with the loan application, as well as for being in compliance with other PPP requirements, including obtaining, preparing and retaining required forms and documentation. Additionally, the PPP borrower must notify the PPP lender in writing of any proposed transaction and provide a copy of the transaction agreements.

When Prior SBA Approval Is Not Required for a Change of Ownership

If a PPP note is fully satisfied, prior approval for a change in ownership is not necessary. Full satisfaction of the note is defined as:

  1. The PPP note being repaid in full or
  2. The loan forgiveness process has been completed per PPP requirements and the SBA has remitted funds to the PPP lender in full satisfaction of the PPP note or the PPP borrower has repaid any outstanding balance on the PPP loan.


Alternately, if a PPP note has not been fully satisfied, the SBA has outlined certain scenarios when the PPP lender can approve a change in ownership and SBA preapproval is not required. These cases include the following.

  1. When transaction is structured as a sale of equity interests:
    a. Sale is 50% or less of the common stock or ownership interest of the PPP borrower; or
    b. The PPP borrower completes a forgiveness application and submits it to the PPP lender; and
    c. An interest-bearing escrow account controlled by the PPP lender is established with funds equal to the outstanding balance of the PPP loan; and
    d. The escrow funds are used to repay any remaining PPP balance and interest.
  1. When transaction is structured as a sale of assets:
    a. A PPP borrower may sell 50% or more of its assets without the prior approval of SBA if:
         i. The PPP borrower completes a forgiveness application and submits it to the PPP lender; and
        ii. An interest-bearing escrow account controlled by the PPP lender is established with funds equal to the outstanding balance of the PPP loan; and
        iii. The escrow funds are used to repay any remaining PPP balance and interest.


If either condition 1 or 2 is not met, then prior approval by the SBA is required before a change in ownership transaction can be completed, and the SBA would have up to 60 days to render a decision.

At CSH, we will continue to monitor new guidance impacting PPP loan recipients and will communicate those updates regularly. If your business is the recipient of a PPP loan and you’re contemplating a sale, acquisition or restructure, please reach out to us with questions.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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