Last week, the SBA issued Procedural Notice 5000-20057, which provides that unless a PPP note is fully satisfied (meaning that the SBA has remitted funds to the lender in full satisfaction of the PPP Note, or the borrower has repaid the PPP Note in full), lender approval is required for transfers of more than 20% of the entity ownership. Further, if the transfer of entity ownership, or entity assets, is more than 50%, then SBA approval is required (which could take months) unless an interest bearing escrow account equal to the outstanding PPP loan balance is established. While many PPP loan documents from lenders prohibit entity transfers without lender approval, not all do, and these new requirements appear to apply even if the PPP loan documents are silent as to, or permit, entity transfers without lender or SBA approval.
Of course, while the new rules imposed with SBA Notice 5000-20057 create additional burdens for business owners with outstanding PPP loans who are considering selling or otherwise transferring their business, they may also create planning opportunities to avoid the burden of seeking SBA approval. Partial sales or transfers combined with option agreements, licensing or management agreements, and entity recapitalizations, are all possible planning strategies to deal with the new planning burdens imposed by SBA Notice 5000-20057. For more information, contact Thomas E. Shea, Esquire.