On Friday, October 2, 2020, the SBA issued an "SBA Procedural Notice" ("Notice") on "Paycheck Protection Program ("PPP") Loans and Changes of Ownership", a very critical topic for so many sale transactions which are presently in the pipeline, or are being contemplated. Importantly, "Change of Ownership" is defined as occurring when 20% of more of stock/ownership interest in an entity is to be transferred, or at least 50% of the assets are to be transferred - so the application of the Notice is very broad.
The Notice then describes various SBA requirements which must be met for various factual situations, including when the PPP Note is fully satisfied, or, in contrast, when the PPP Note will not be fully satisfied prior to closing the sale or transfer. From a review of the Notice, it is clear that by far and away the cleanest scenario is to have the forgiveness of the PPP loan having fully occurred prior to closing, with the underlying Lender having been fully paid off by the SBA, or in combination with the PPP borrower. This fact emphasizes the importance of a potential Seller having its forgiveness application being submitted and processed as quickly as possible.
The requirements in the Notice for situations when the PPP Note will not be fully satisfied at closing can be difficult to satisfy and potentially time consuming. For example, one alternative requires that the full amount of the outstanding PPP loan balance be placed into escrow - a not very attractive option.
In summary, early planning should be essential for any potential sale transaction which involves PPP loans, and the transaction documents certainly should address the PPP loan. And as the Notice states, "SBA reserves all rights and remedies available under the law in the event of fraud, false statements, and/or unauthorized uses of PPP loan proceeds."
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Diane Boudreau-Tschetter: Escrow & Bulk Sale Services In California
California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.
|Helen Yoo, New Century Escrow - Escrow Services In Southern California
Helen Yoo at New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.
|Shalonda Chappel: Escrow & Bulk Sale Services - Southern California
Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.
|Elizabeth McGovern: Escrow Services - San Francisco Bay Area
McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.
|Brad Steinberg, Business Broker: Laundromat Specialist
PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.
|William F. Ziprick, Attorney: Legal Services For Buyers And Sellers
Through creative problem solving, attention to detail, accessibility, & understanding that unnecessary delay is often a deal killer, I work closely with my clients and other professionals to consistently achieve a high rate of closings. Office: 909-255-8353, Cell: 509-951-7230.
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