As merger and acquisition activity in senior housing continued to pick up after a sharp drop in the early days of the COVID-19 pandemic, some buyers and sellers have struggled to structure transactions when one or both of the paychecks are recipients of outstanding paycheck loans. The $ 525 billion loan waiver for the pandemic relief plan
In response to this confusion, the Small Business Administration recently issued a procedural note containing information about changes in ownership for companies that have received PPP funding. According to the guidelines developed by the auditing company Marcum, the announcement has three important findings for companies:
- Borrowers will most likely have to deposit a portion of the purchase price related to the outstanding PPP loan amounts pending a credit decision;
- Borrowers may be able to defer taxes on the funds deposited under the installment method; and
- Borrowers must notify their lenders and the SBA when a change of ownership occurs and there is an outstanding PPP loan.
In order to obtain a change of ownership SBA approval, the borrower’s PPP lender must provide information about the reason the borrower fails to meet the PPP note or fiduciary funds, details of the proposed transaction, a copy of the executed PPP Note and a letter of intent and the purchase or sale agreement. The lender must also disclose whether the buyer has their own existing PPP loan and provide a list of all owners of 20% or more to the buying company.
Regardless of whether the sale requires prior SBA approval, the PPP borrower or successor to the PPP borrower remains liable in the event of a merger and is subject to all obligations under the PPP loan agreement, said Dawn Minotas, director of outsourced managed services at Marcum.
The PPP lender must also notify the SBA within five business days of the transaction being completed, Minotas said.
