New guidance from SBA regarding PPP loans
PPP loans have been a lifeline for many businesses during the current economic downturn caused by the Covid-19 pandemic.
A lot of PPP loan recipients are still experiencing financial distress and are grappling with what the future may hold. We are seeing a marked pick up in owners of businesses with revenues of $10-50 million across a wide array of industry segments, who are now seriously considering a sale as the best path to maximize and realize enterprise value.
New guidance from the SBA regarding PPP loan recipients could potentially add time and complexity to the M&A process. These requirements need to be understood early in the transaction process by both buyers and sellers to avoid the potential for undermining the goals of both parties.
When does a change in ownership occur?
SBA regulations state that a change in ownership occurs when:
Ownership interest or common stock of at least 20% is sold or transferred
50% or more the assets are sold or transferred in one or more transactions
The entity is merged with another business
What approvals are required?
Depending on the specifics of each situation, a transaction may require the approval of the lender and SBA. Required approvals in the SBA guidance include:
No Approval Required
If the PPP loan is forgiven in full or difference between the maximum approved amount and the loan amount is paid.
Stock sale transactions involving up to 50% of the common stock or other ownership interest.
PPP Lender Consent
Transactions involving a transfer of equity or a merger involving up to 50% common stock or other ownership interest.
Prior to closing the borrower submits a complete application for loan forgiveness.
Must escrow an amount equal to balance of PPP loan with the lender.
Upon approval of the application borrower receives escrowed amount less any unforgiven amounts
SBA and PPP Lender Consent
If the transaction is for more than 50% of the common stock or other ownership interest AND the full amount of the PPP loan cannot be escrowed, the following will generally have to be submitted to the SBA for approval of the transaction:
Explanation of why the owner cannot repay the loan or escrow the necessary funds.
○ Copy of the PPP loan documents.
○ Copy of the PPP note.
○ Purchase Agreement.
○ Details on who will be responsible for the obligations of the borrower
for the PPP loan.
Statement on whether the buyer has a PPP loan
○ List of all owners of 20% or more of the common stock or other
ownership interests of the buyer.
SBA Consent Timeline Transactions requiring SBA consent are expected to receive a determination in 60 days of receipt of the complete application as provided in the recently published guidelines. A word of caution, however, is that this is a new process and may take longer to implement at the beginning. Another caution, the application of funds received from multiple government loan programs can add additional time and costs to completing a transaction. In addition to these lender requirements, buyers, in particular, have to understand what financial obligations they're taking on, or risk severely impacting their return on investment. While the provisions of this new SBA guidance should not present any difficulties, this is just another “hoop to jump through” to completing an M&A transaction.Robert Rubin Robert Rubin joined Boustead as Senior Managing Director in 2020 and has over 35 years of experience in Mergers and Acquisitions, the last 25 of which have been specifically focused on the technical services marketplace including Aerospace, Defense and Government contracting in the Washington DC Metropolitan area. In addition to his background in M&A, he has extensive experience in corporate finance and development with public and privately held companies. He has been involved in more than 40 transactions worldwide, and served as President of the National Capital Chapter and on the International Board of Directors for ACG. Robert is a FINRA registered representative and holds series 7, 24, 63, 79 and 99 licenses. For more information on M&A's contact: Robert Rubin (301) 537-8221 Robert.Rubin@boustead1828.com
This opinion is that of the individual and not necessarily that of Boustead Securities, LLC. This is not a solicitation or offer to buy or sell securities. There is no guarantee that any specific outcome will be achieved.
About Boustead & Company Limited Boustead & Company Limited is a diversified and comprehensive non-bank financial institution with offices in Los Angeles, New York, San Francisco, London and Beijing that is rapidly expanding in growth markets throughout the US and Asia. Through its principals and fully licensed subsidiaries, Boustead & Company possesses rich experience and exceptional capabilities in capital markets deal execution and is dedicated to providing best-in-class one-stop financial services to clients. Boustead’s comprehensive financial services platform consists of four operating units: Boustead Securities, LLC a US-based FINRA Broker/Dealer and middle-market investment bank; Sutter Securities Group, Inc., which owns four FINRA-regulated entities, Sutter Securities, Inc., Sutter Securities Clearing, LLC and FlashFunders Funding Portal, LLC, along with Sutter Securities Financial Services, Inc., Sutter Capital Partners, LLC a California Registered Investment Advisor; and Boustead Capital Markets, LLP a London-based FCA-regulated company. For more information, please visit www.bousteadco.com. Forward-Looking Statements This document contains forward-looking statements. In addition, from time to time, we or our representatives may make forward-looking statements orally or in writing. We base these forward-looking statements on our expectations and projections about future events, which we derive from the information currently available to us. Such forward-looking statements relate to future events or our future performance, including: our financial performance and projections; our growth in revenue and earnings; and our business prospects and opportunities. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,” “potential,” or “hopes” or the negative of these or similar terms. In evaluating these forward-looking statements, you should consider various factors, including: our ability to change the direction of the Company; our ability to keep pace with new technology and changing market needs; and the competitive environment of our business. These and other factors may cause our actual results to differ materially from any forward-looking statement. Forward-looking statements are only predictions. The forward-looking events discussed in this document and other statements made from time to time by us or our representatives, may not occur, and actual events and results may differ materially and are subject to risks, uncertainties and assumptions about us. We are not obligated to publicly update or revise any forward-looking statement, whether as a result of uncertainties and assumptions, the forward-looking events discussed in this document and other statements made from time to time by us or our representatives might not occur.