By Kevin O’Connor & Jennifer Hart

changes of ownershipThe Small Business Administration (SBA) recently released a Procedural Notice concerning changes of ownership for Paycheck Protection Program (PPP) loan borrowers (the “Notice”). Since the first days of the PPP loan program, borrowers and their advisors have been attempting to divine the consequences of a borrower undergoing a change in ownership prior to full repayment or forgiveness of the borrower’s PPP loan.

Per the Notice, a “change of ownership” will be deemed to have occurred when (1) at least 20% of the common stock or other ownership interest of a PPP borrower is sold or otherwise transferred, (2) the PPP borrower sells or otherwise transfers at least 50% of its assets in one or more transactions, or (3) a PPP borrower is merged into or with another entity.

Under the Notice, regardless of the structure of the change of ownership, the PPP borrower remains responsible for all obligations under the PPP loan, the required certifications and all other PPP loan requirements.

Prior to the closing of any change of ownership transaction, the PPP borrower must notify the Lender in writing and provide copies of the proposed agreements and other relevant documents.

If the PPP Note is satisfied prior to the closing of the transaction, there are no restrictions on a change of ownership. If the PPP Note is not fully satisfied prior to closing, SBA approval of the change of ownership can be avoided by establishing an interest-bearing escrow account controlled by the PPP lender with funds equal to the outstanding balance of the PPP loan. Once the forgiveness process is completed, if there is a remaining loan balance, the escrow funds must be disbursed first to repay such balance. The description of the escrow agreement requirements in the Notice seem to indicate that the escrow must be funded prior to the closing of the transaction which may be problematic in many instances where the PPP loan was sizable in relation to the transaction’s purchase price.

In all other cases of changes of ownership, SBA prior approval will be required. To obtain that approval, the PPP lender must submit the request to the appropriate SBA Loan Servicing Center and include certain additional documentation.

In summary, PPP borrowers now have a relatively clear path to be able to close pending or new M&A transactions without the threat of losing the ability to apply for, and obtain, full forgiveness of their PPP loans without the frustrating delay inherent in the SBA approval process.

It should also be noted that the Notice contains certain other requirements applicable to PPP lenders and certain other matters. For more information or advice, don’t hesitate to contact Kevin O’Connor ( or 216.739.7213) or any member of the KJK PPP Loan team.