Ppp Loan To Start A Business – Holly is the founder of Enterprise Transitions, LP where she helps business owners who want to grow their business, transition ownership to family members, key employees or outside parties, or need help when it’s time to sell.
Holly has answered more than 3,000 questions asked by business owners about starting, growing and selling a business since founding StartupPromise.com and to date.
Ppp Loan To Start A Business
The Small Business Administration (SBA) issued a procedural notice on October 2, 2020 that provides guidance to business owners and lenders on how to administer Paycheck Protection Program (PPP) loans.
What Does A Ppp Loan Mean For Employees + Faqs
This post summarizes the notice and includes an infographic to help business owners This includes the following:
This guidance has been around for a long time Until now, business owners, lenders and M&A advisors have not had clear guidelines on how to manage a PPP loan during a business sale, merger or partial change of ownership.
The SBA guidelines under this procedural notice define an “ownership change” as occurring when one of three events occurs:
Do business owners with PPP loans ever need to notify the SBA or lender of the sale?
Paycheck Protection Program
If your business received a PPP loan and you are considering a sale, there are three situations where you will not need to involve the SBA or your lender in the process:
If the PPP borrower, prior to the closing or sale, has repaid the PPP loan in full or completed the loan forgiveness process and the SBA has paid the PPP lender (your bank) in full and/or the PPP borrower has repaid. If any remaining (unforgiven) balance is full, then no restriction or SBA notification is required for the PPP borrower or successor.
If the sale or transfer represents less than 20% of the common stock or other ownership interest in the business, it is not considered an ownership change. Accordingly, neither the SBA nor the lender need be notified
As with the sale or transfer of less than 20% of stock or other ownership interest in the business, it is not considered a change of ownership if the sale or transfer represents less than 50% of the business’s FMV of its assets. Accordingly, neither the SBA nor the lender need be notified
How The Paycheck Protection Loans Work
If you are thinking about selling your business and you are not fortunate enough to fall into one of the three situations above, you will need to involve the SBA and/or lender in the sale process.
At a minimum, you will be required to notify your PPP lender in writing of the sale and provide the lender with a copy of the proposed purchase agreement.
Depending on the type of sale (stock vs. property), the amount of ownership or property sold, or a combination of the transaction, you may need to take additional steps before closing or get the SBA’s approval.
If the type of business sale is a ‘stock sale’, where 20% or more of the common stock or other ownership is being sold, the SBA’s approval is not required.
Ppp Loan Approval Process Template
If the type of business sale is an ‘asset sale’, where 50% or more of the FMV of the business is being sold as assets, the SBA’s approval will not be required.
If there is a transaction or merger with another entity, SBA’s approval is not required
In addition, unless the sale or transfer includes 20% but not less than 50% of the common stock or other ownership interest or less than 50% of the FMV of the asset, the seller and buyer have other steps. Take before closing to address any PPP liability
Required steps require pre- and post-closing of the PPP loan when 50% or more of the common stock, other ownership interests in the assets or FMV are sold or diluted.
Here’s How To Lookup All Ppp Loan Data And Ppp Loan Recipients
The SBA will require prior approval when selling more than 50% of the ownership interest (stock, LLC member units, partnership shares) or when FMV is more than 50% of the business, if there were no PPP notes. Provided in full and the above requirements relating to escrow funds cannot be met The PPP lender handles this approval process
SBA’s approval of the sale or merger will, in this case, be conditioned on the buyer assuming all of the seller’s PPP loan obligations. A separate loan concept agreement or transaction purchase agreement must include PPP loan obligation language and will be reviewed by SBA.
The simple answer is ‘no’ Regardless of the type of sale, the amount of stock or other ownership interest transferred or sold, the FMV percentage of assets transferred or sold, or whether the transaction is considered a merger, if your business has an outstanding balance on the PPP loan, the original PPP loan recipient is subject to all obligations under the PPP loan. will remain
This means that the seller of the business with an outstanding PPP loan balance, the PPP loan repayment, certification, compliance reporting, and all SBA and lender forms for storage and support documentation does not transfer to the buyer after the sale or merger. .
Sba Issues New Procedures On Business Sellers With Ppp Loans
If the transaction is considered a ‘change of ownership’ as per the Processing Notice (defined above), the PPP lender will be required to report the identity of the new owner, their ownership percentage, TIN for any owner holding 20 % or more of business equity and, if required, escrow account location and amount
Segregation of PPP funds is required if more than one PPP loan exists after ownership or merger This means that records of funds, and loan-related expenditures, must be segregated and tracked to demonstrate compliance with PPP loan requirements.
And in case of merger, the successor (business) entity will be responsible for all PPP loan obligations.
The SBA procedural notice was silent on the issue of EIDL grants received by many business owners Meanwhile, a PPP borrower who also received an EIDL grant is responsible for repaying the EIDL grant as per the PPP loan terms.
Loverboy’s Ppp Loan
It is worth running through an example to understand how EIDL grants can impact business sales If a business receives a $10,000 EIDL grant in addition to a PPP loan, the $10,000 EIDL grant is exempt from PPP loan forgiveness. If the PPP lender approves the PPP loan forgiveness, the lender provides the business with a loan repayment plan for the EIDL grant balance and the business will have a PPP loan balance of $10,000 on its books.
Given the SBA’s silence on how to handle EIDL grants in the event of a business sale, it refers to the rules defined in the Notice of Procedure regardless of the relatively small remaining PPP loan balance due to the receipt of an EIDL grant.
When selling or merging businesses, the terms of a loan from a traditional lender should be carefully reviewed and considered by all parties before closing. Anything less, in the case of a merger, leaves the buyer, seller, and/or heirs open to a host of problems.
Undoubtedly, it is very important for buyers and sellers to become well acquainted with the PPP loan rules before the expected closing. Otherwise, the transaction may drag on for months
Business Brief: Growing Number Of Fraud Cases Involving Ppp Loans
And for business owners most involve a change in ownership or sale of the fair market value of business assets, or if the loan balance is unpaid or unavailable to be placed in escrow. , many will be holding their breath as they wait for the SBA’s approval to sell their business
Please log in again The login page will open in a new tab After logging in you can close it and return to this page Update as of January 26, 2021: This article may no longer be up to date. Read this article for the latest information on the current round of paycheck protection programs.
For small business owners, the Paycheck Protection Program (PPP) may be one of the most important parts of the Coronavirus Assistance, Relief, and Economic Security Act (CARES Act). The program offers up to $350 billion in new business loans, and unlike other emergency loans, most of the money you get from PPP is forgivable in the future.
In many cases, these COVID-19 relief loans can act more like grants – money that you can use to help run your business and not have to repay.
How A Ppp Loan, Expenses And Forgiveness Impact Your Profits
Funding Circle, the largest small business lending fintech, is one of the few no-deposit online lenders in the United States recently approved to offer paycheck protection program loans.
The current round of PPP is scheduled to end on March 31, 2021 and the program may be extended. We will continue to accept and process new applications after March 31
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