TAX ALERT |
The Small Business Administration (SBA) responded to the need for Paycheck Protection Program (PPP) loan treatment during a change in ownership by releasing procedural guidance in the evening hours of Friday, Oct. 2nd. While COVID-19 continues to create uncertainty in the overall economy, the deal market is showing signs of life and buyers and sellers appreciate the certainty the SBA has now provided in how to address unforgiven PPP loans when a change in ownership occurs. This guidance is welcome and necessary as the standard PPP promissory note provides that a change in ownership of a borrower is a condition that triggers default on the note.
First, an ownership change occurs when one of the following events occur:
- At least 20% of the common stock or other ownership interest of a PPP borrower (including a publicly traded entity) is sold or otherwise transferred, whether in one or more transactions, including to an affiliate or an existing owner of the entity;
- The PPP borrower sells or otherwise transfers at least 50% of its assets (measured by fair market value), whether in one or more transactions; or
- A PPP borrower is merged with or into another entity.
Should a change in ownership occur, the PPP borrower is still responsible for all certifications made on the original loan application and compliance with the program, including preparation and retention of all required forms and supporting documentation to obtain and support loan forgiveness. In addition, a borrower must notify the PPP lender in writing of the contemplated transaction and provide the lender with a copy of the proposed agreements or other documents that would effectuate the proposed transaction.
The status of a borrower’s PPP loan forgiveness process affects the procedures that a borrower must undertake during a change in ownership. For example, if the PPP note is fully satisfied (either through repayment of the note in full or SBA has remitted funds to the PPP lender in full satisfaction of the note) prior to the closing of the sale or transfer or if loan forgiveness has been granted, there are no restrictions on a change in ownership. In contrast, if the PPP note is not fully satisfied prior to the closing of the sale or transfer, certain transactions may or may not require approval prior to the change of ownership and the establishment of an interest-bearing escrow account controlled by the PPP lender until the forgiveness process is complete.
Buyers and sellers should carefully review the SBA procedural guidance and determine the appropriate steps to take during a change in ownership transaction to ensure compliance and avoid missteps that could slow the closing process.
Questions or Want to Talk?
Call us directly at 972.221.2500 (Flower Mound) or 940.591.9300 (Denton),
or complete the form below and we’ll contact you to discuss your specific situation.
This article was written by Rob Calafell, Justin Stallard, Ryan Corcoran , Debbie Singer and originally appeared on 2020-10-05.
2020 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
KHA Accountants, PLLC is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.
For more information on how KHA Accountants can assist you, please call 972.221.2500.