New Guidance Related to PPP Loans and M&A

October 07, 2020
Len Fishman and John Harms of BBH Corporate Advisory & Banking discuss new guidance around change of ownership transactions involving entities with PPP loans.

Brown Brothers Harriman (BBH) continues to monitor changes to legislation and program rules under the CARES Act and Paycheck Protection Program (PPP). The details discussed in this article are accurate as of October 8, 2020.

In the months since the PPP’s launch, people considering mergers and acquisitions (M&A) or investments involving businesses that received a PPP loan have struggled to anticipate if and how a transaction could affect PPP loan forgiveness. Confronting this deal risk, many have taken a wait-and-see approach to avoid unexpectedly assuming potential obligations and liability related to another party’s PPP loan. In response to borrower and lender questions, the Small Business Administration (SBA) issued a Procedural Notice on October 1, 2020, indicating that change of ownership transactions involving entities with PPP loans may proceed if either the loan is repaid or completely forgiven prior to closing, the PPP borrower applies for loan forgiveness and funds an escrow account with the amount outstanding on the loan, or the parties seek approval for the transaction from the SBA prior to closing. The notice defines change of ownership transactions as meeting one of the following:

  • Transfer to another entity of 20% or more of the PPP borrower’s ownership interest – including to affiliates or existing owners of the entity
  • Transfer to another entity of 50% or more of the PPP borrower’s assets (at fair market value) – including if the purchaser is an affiliate or existing owner of the entity
  • Merger of a PPP borrower with another entity, including if the merged entity is an affiliate or existing owner

These change of ownership thresholds are calculated to include all ownership interest or asset transfers on an aggregate basis completed from the date of the initial PPP loan approval and forward.

The following table summarizes recent guidance affecting parties considering change of ownership transactions that involve companies that received PPP loans:

This table shows the summary obligations of buyers and sellers contemplating transactions involving PPP borrowers. The transactions covered include an equity sale/transfer, an asset sale/transfer and a merger.

Responsibility for Obligations and Terms of PPP

In change of ownership transactions, the PPP borrower (in minority transactions), the acquirer (in majority ownership or asset purchases) or the combined entity (in a merger) remains responsible for:

  • Performance of the obligations under the PPP loan
  • The certifications made in connection with the PPP loan application
  • Obtaining, preparing and retaining all required PPP forms and supporting documentation and providing those forms and supporting documentation to the PPP lender or SBA upon request
  • Compliance with all other applicable PPP requirements

If a new owner has a separate PPP loan, each PPP loan and the corresponding expenses must be segregated from an operational standpoint, and the borrower is responsible for showing compliance with PPP requirements for each loan individually.

One of the more unusual aspects of the SBA's guidance is that companies acquiring a majority of a PPP borrower's assets must also assume responsibility for the PPP loan. This is unusual for an asset sale, which are often pursued in order to prevent the transfer of legacy liablilities to the acquirer.  

Required Approvals for PPP Borrowers Completing Transactions

The SBA has indicated that PPP borrowers that have repaid or had their loan forgiven face no PPP-related restrictions on transactions. For borrowers with outstanding PPP loans that are considering M&A, divestitures and share transfers, the SBA provided guidance on the necessary protocols and approvals as follows:

  • Minority Interest Transactions: Purchases, sales or transfers of less than 50% of a company’s equity or assets (as measured at fair market value) do not need to be preapproved by the SBA or the PPP lender; however, minority equity sales are subject to the SBA notice provision discussed below.
  • Controlling Interest Transactions: Purchases, sales or transfers of 50% or more of a PPP borrower’s equity or transactions in which a PPP borrower merges with another entity must be approved as described below:
    • PPP Lender Approval: The borrower can submit a loan forgiveness application to the PPP lender with all necessary forgiveness documentation and also fund an escrow account with the PPP lender with an amount equal to the outstanding principal and interest on the PPP loan. The parties may then consummate the transaction prior to a loan forgiveness decision. If the PPP loan is forgiven, the escrow funds are returned to the PPP borrower (now considered to be the acquirer or combined entity). If the forgiveness application is denied, the funds in escrow will be used to repay the PPP lender.
    • SBA Approval: Borrower can apply to the SBA for preapproval prior to closing by submitting a request to the appropriate SBA Loan Servicing Center that includes:

An explanation of why the borrower is unable to repay the loan, have the loan forgiven and/or fund an escrow account as described above

  • Details of the transaction under consideration
  • A copy of the executed PPP note
  • A letter of intent and the purchase or sale agreement detailing the responsibilities of the PPP borrower, seller (if different from the PPP borrower) and buyer with respect to the PPP loan
  • Disclosure of whether the buyer has a PPP loan and, if so, the loan number
  • A list of all owners of 20% or more of the purchasing entity

    The SBA will review and provide a determination within 60 calendar days of receipt of a complete request and may require “additional risk mitigation measures as a condition of its approval of the transaction.” The SBA has not provided insight into what those measures may be.
  • “Majority” Asset Transfers: Purchases, sales or transfers of 50% or more of the assets (as measured at fair market value) largely follow the same procedures as controlling interest transactions described above. In addition, however, SBA approval in this scenario will be conditioned on transaction documents detailing that the purchasing entity will assume all of the PPP borrower’s obligations under the PPP loan as well as responsibility for compliance with the PPP loan’s terms.

Required Notice Provisions

In addition to processes to request approval for change of ownership described above, prior to the closing of any change of ownership transaction, the PPP borrower must notify the PPP lender in writing of the contemplated transaction and provide the PPP lender with a copy of transaction agreements that would effectuate the transaction. Further, the PPP lender must then notify the appropriate SBA Loan Servicing Center, within five business days of the transaction’s completion, of the identity of the new owners as well as their ownership percentage, the tax identification number(s) for any owner(s) with ownership stakes of 20% or more and details related to the escrow account (if required). As with other aspects of the PPP program and government programs generally, submissions can be subject to Freedom of Information Act requests, and while this has not yet come to the fore, it does remain a future possibility.

Though some of these procedures may disappoint some parties considering change of ownership transactions, and while questions remain, the SBA has generally reduced risk by providing guidance to inform what parties in a transaction can expect. Please reach out to your BBH relationship team for further information or assistance on the Paycheck Protection Program.

Source: Small Business Administration:


Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries. This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners. © Brown Brothers Harriman & Co. 2022. All rights reserved. PB-05598-2022-08-02

As of June 15, 2022 Internet Explorer 11 is not supported by

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see

captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction