Generally, the Small Business Administration (SBA) and Paycheck Protection Program (PPP) lenders must consent to certain changes in a borrower’s ownership that occur within one year of the borrower’s PPP loan disbursement. Failure to obtain the necessary consent could prove costly for a borrower, as PPP lenders and the SBA ong other remedies, deny PPP loan forgiveness applications, declare the full PPP loan immediately due and payable, and even hold the borrower’s successor liable for the PPP loan funds.

Until recently, borrowers were left guessing at what was meant by a change of ownership transaction. On , the SBA released guidance that provided further clarity on changes of ownership and how to obtain PPP lender and SBA consent.

What is a change of ownership?

• a transfer of 20% or more of the ownership interest in one or more transactions to an independent third party or an affiliate of the borrower;
• a transfer of 50% or more of the borrower’s assets in one or more transactions; or
• a merger of the borrower with or into another entity.

When is PPP lender consent necessary?

A borrower must obtain PPP lender consent for any change of ownership transaction. PPP lender consent must be given before the transaction is closed. To obtain the PPP lender’s consent, the borrower must notify the lender of the transaction in writing and provide a copy of the stock purchase agreement, asset purchase agreement or merger agreement that will effectuate the proposed change of ownership transaction. (more…)

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