The SBA released a Procedural Notice (the “Notice”) effective October 2, 2020 that provides information concerning the required procedures for changes of ownership of an entity that received Paycheck Protection Program (“PPP”) funds.

For purposes of the PPP, a “change of ownership” will be considered to have occurred when:
• at least 20 percent 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 percent 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

Regardless of any change of ownership, the PPP borrower remains responsible for:
• performance of all obligations under the PPP loan,
• the certifications made in connection with the PPP loan application, including the certification of economic necessity, and
• compliance with all other applicable PPP requirements, which includes obtaining, preparing, and retaining all required PPP forms and supporting documentation and providing those forms and supporting documentation to the PPP lender or lender servicing the PPP loan (referred to as the “PPP Lender” in this Notice) or to SBA upon request.

Prior to the closing of any change of ownership transaction, the PPP borrower must notify the PPP Lender in writing of the contemplated transaction and provide the PPP Lender with a copy of the proposed agreements or other documents that would effectuate the proposed transaction.
There are different procedures depending on the circumstances of the change of ownership. Here is a general overview of the circumstances, each of which are more fully described in the Notice:
(1) If the PPP Note is fully satisfied
(2) If the PPP Note is not fully satisfied
   a. Cases in which SBA prior approval is not required
     i. Change of ownership is structured as a sale or other transfer of common stock or other ownership interest or as a merger
     ii. Change of ownership is structured as an asset sale
   b. Cases in which SBA prior approval is required
(3) For all sales or other transfers of common stock or other ownership interest or mergers, whether or not the sale requires SBA’s prior approval

For more detailed information, the complete Notice can be located here: https://home.treasury.gov/system/files/136/PPP--Procedural-Notice--PPP-Loans-and-Changes-of-Ownership.pdf

The Attorneys at Levene Gouldin & Thompson, LLP are available to provide advice and counsel concerning these new statutory obligations and other matters related to COVID-19.