Addressing PPP loans in ownership transitions

By the end of June 2020, the U.S. Small Business Administration had approved nearly 4.9 million Paycheck Protection Program (PPP) loans. Some of the practice owners who applied for those loans are in the process of a “change in ownership”.

Estate tax exemptions are high, interest rates are low, and practice valuations in some cases are at an all time high. These are all factors that make this an opportune time to consider a potential practice sale.

However, practice owners who took out a PPP loan may face hurdles in completing those transactions. Many PPP borrowers will need to notify their lender in advance, and some will need SBA approval before a deal can move forward.

Under SBA guidance, in some cases, when a practice ownership transfer totals less than 20 percent, no special notices or approvals may be required by the SBA. Borrowers should, however, check their underlying loan documents and recent SBA guidance to determine whether advance notice is required.

In cases, when an ownership transfer totals between 20 percent and 50 percent, the practice owner may be required to provide their PPP lender with advance notice, including copies of the proposed agreement and transaction documentation. In some cases, the guidelines stipulate the PPP lender can approve these transactions without SBA approval.

SBA approval may be required if the sale or transfer is over 50 percent of the common stock or ownership interest. In order to receive approval, the buyer may be required to assume the PPP borrower’s outstanding obligations under the loan. Generally, the SBA has 60 days to review such transactions, so consider that in deal timelines.

Again, in some cases, no SBA approval may be required if the practice owner has completed a loan forgiveness application and deposited funds into an escrow account equal to the outstanding loan, pending the SBA’s determination of forgiveness.

Be aware that ownership transfer limits set by the SBA are aggregate numbers for transfers that occur during the life of your loan.

Before any transitions or transfer, you should consult with your attorney, CPA, Financial Advisor, and Lender.

It should be noted that many practice owners are on their 2nd PPP loan, which may create even more complex problems when a practice sale takes place.