SBA Issues Guidance on Imposing Additional Restrictions on Change of Control Transactions for PPP Borrowers

November 4, 2020

By: Eric N. Fischer

On October 2, 2020, the Small Business Administration (SBA) issued an SBA Procedural Notice establishing requirements under the Paycheck Protection Program (PPP) for changes of control of the PPP loan Borrower.


A change of ownership is defined under the Notice as a transaction or series of transactions where one of the following occurs:

  1. at least 20% of the ownership interests in the PPP Borrower are sold or otherwise transferred, including sales and transfer to existing owners or affiliates
  2. the PPP Borrower sells or otherwise transfers at least 50% of its assets, whether in one or more transactions, or
  3. the PPP Borrower is merged with or into another entity.


If a change of ownership occurs in a PPP Borrower, prior to closing the transaction causing the change of ownership the PPP Borrower is generally required to complete a forgiveness application and place in escrow an amount of the PPP loan with the PPP lender. If the PPP Borrower is unable or unwilling to escrow the PPP Loan Proceeds, the PPP Borrower is required to apply to the SBA for approval and provide the following information:

  1. the reason the PPP Borrower cannot pay off the existing PPP loan or escrow the funds,
  2. details of the change of control transaction
  3. a copy of the PPP Borrower’s lender note
  4. any letter of intent or purchase agreement setting forth the responsibilities of the PPP Borrower and buyer
  5. disclosure of whether the buyer has an existing PPP loan
  6. a list of all owners of 20 percent or more of the buyer
  7. for asset sales, evidence that buyer is assuming all of PPP Borrower’s obligations under the PPP loan pursuant to the purchase agreement, and
  8. additional information as requested by SBA.


The Notice indicates the SBA will provide a determination of the change of control within 60 days of receipt of a completed request.


If the PPP loan was already fully paid, or the PPP loan was already forgiven in its entirety, the PPP Borrower is otherwise exempted from the change of control requirements in the Notice.


Even if a transaction does not constitute a change of control under the Notice, all PPP Borrowers should review their PPP note to determine whether consent of their lender is still required for the contemplated transaction.


The SBA Notice provides important guidance for proposed change in ownership transactions, but also establishes significant burdens for PPP Borrowers. Further guidance is needed to clarify a number of issues, including the penalties for failure to comply and whether indirect ownership interests are covered by the Notice.


If you have questions about a change of control transaction and your PPP Loan or any other questions about the Paycheck Protection Program please contact your Nyemaster Goode attorney.



Visit Nyemaster Goode's Paycheck Protection Program Resource Center