PPP: SBA issues guidance on ownership changes and easy full forgiveness for small loans | Baker Donelson
Following Congress’s creation of the Paycheck Protection Program (PPP) under the Small Business Administration Loan Program 7 (a), Congress burdened PPP loans with numerous rules, regulations and standard operating procedures for loans 7 (a), many of these may not be familiar to typical PPP borrowers as well as lenders who have not historically made many loans 7 (a). One of those 7 (a) requirements is that the SBA must approve any change of ownership of a borrower in the first year after loan disbursement 7 (a) in accordance with SBA standard operating procedure 50 57.
With the PPP initially scheduled to last only until June 30, 2020, with all loan proceeds to be spent within 8 weeks of receiving a PPP loan, this has not been a major issue for many borrowers. PPP who might have liked it. to sell their businesses. However, due to the Paycheck Protection Program Flexibility Act enacted on June 5, 2020, with the extended period covered to 24 weeks and the extended period for the lender (60 days) and the SBA to consider a pardon request. (90 days), the SBA approval requirement has become more of a concern, especially given the SBA’s informal position that it preferred that all borrowers wait until forgiveness decisions have been made before making a change of owner. Ironically, the SBA had imposed this requirement only relatively recently through a Notice of Procedure (Control Number: 5000-19009) issued on April 1, 2019.
For several months, the SBA remained evasive about requests for approval of changes in ownership from PPP borrowers. However, on October 2, 2020, the SBA issued a Notice of Procedure (Control Number: 5000-20057) providing formal guidance on ownership changes under the PPP (but not other 7 (a) loans), which offers some relief to PPPs. borrowers seeking to transfer some or all of their business through a sale of shares or assets. Unsurprisingly, the notice of procedure provides that no approval is required if the borrower has repaid their PPP loan in full or if they have requested a remission with a final decision on the remission having been made (such as evidenced by the payment of the SBA to the lender) with either the total amount of the loan forgiven, or the borrower having repaid any amount not remitted.
For borrowers who have outstanding amounts on their PPP loans, the process is a bit more complicated and depends, to some extent, on the percentage of the business sold. The approval of the ASB is not required in the event of (i) transfer (including by merger) of 50 percent or less (when combined with all other transfers since the date of approval of the borrower’s PPP loan) of the borrower’s property interest, or (ii) the borrower submits a completed forgiveness request to its lender and escrow the full PPP loan amount with the lender. In the latter case, the sequestered amount must be used to repay any unsettled portion of the PPP loan.
Likewise, SBA approval is not required in the event of (i) transfer of less than 50 percent assets of the borrower, or (ii) the borrower submits a completed forgiveness request to its lender and escrows the full PPP loan amount with the lender. In the latter case, the sequestered amount must be used to repay any unsettled portion of the PPP loan.
The borrower should seek SBA approval before making any other change in ownership, whether it is a sale of shares or assets. As part of the approval process, the borrower must submit certain information to the SBA (through their lender), including the following:
- A statement explaining why the borrower is unable to structure the transaction to meet the requirements of a transfer without SBA approval, including a statement explaining why any required escrow cannot be funded at from the proceeds of the transaction.
- Details of the proposed transaction, including a copy of any letter of intent or purchase agreement relating to the transaction.
- Disclosure of any PPP loans held by the assignee (s) prior to the proposed transaction.
- A list of all owners of 20% or more of any transferee entity.
The Notice of Procedure provides that the SBA will render a decision within 60 days of receiving a complete application.
Easier forgiveness reductions
On October 8, 2020, the SBA and the Treasury issued an interim final rule eliminating discount reductions resulting from either a reduction in the number of full-time equivalent employees of a borrower or individual employees who pay if the loan from the borrower (when aggregated with PPP loans to any of its affiliates) does not exceed $ 50,000. To make this change, the SBA and the Treasury have also released a new pardon application – the SBA 3508S form – which is both shorter and should be easier for qualifying borrowers to complete than the SBA 3508EZ form. Borrowers who qualify to use SBA Form 3508S should always provide information to prove that the PPP loan proceeds have been used in accordance with PPP requirements in the same manner as with SBA Form 3508 or SBA Form 3508EZ (for (example, providing payroll reports and quarterly employment income tax returns to justify payroll taxes).
In issuing the relaxed requirements, the SBA and the Treasury noted that although a significant number of loans of $ 50,000 or less have been made under the PPP, the total amount of these loans is relatively small compared to the amount. total of all PPP loans made and, therefore, was a de minimis exemption permitted under the CARES Act.