On 10/2/2020 the SBA issued guidance for PPP borrowers undergoing a change in ownership (covering asset sales or stock sales) prior to obtaining loan forgiveness. 

SBA Procedural Notice for Changes in Ownership

  • If a change in ownership occurs before the PPP Forgiveness Application has been approved by the SBA
    • Prior to closing, a PPP borrower must complete and submit a forgiveness application and place in escrow the  amount of the outstanding PPP loan with the PPP lender or
    • Receive approval from the SBA for the change of ownership transaction
  • If a change in ownership occurs after the PPP Forgiveness Application has been approved by the SBA, the borrower is not required to set up an escrow account or obtain approval from the SBA

A change of ownership for purposes of these PPP procedures is defined as a transaction or series of transactions involving any of the following:

  • At least 20% of the ownership interests are sold or transferred
  • The PPP borrower sells or transfers at least 50% of its fair market value of assets
  • The PPP borrower is merged with or into another entity

In any event, the PPP borrower must notify the PPP lender of any contemplated change in ownership transactions prior to closing.  

New Streamlined Forgiveness Application

On 10/8/2020 the SBA added Form 3508S which is the third PPP Loan Forgiveness Application. 

It will only be used for borrowers who received $50,000 or less in loan proceeds. 

Borrowers must certify each of the following seven items.

  1. The dollar amount of the amount requested for forgiveness doesn’t exceed the principal amount of loan and
    • The loan was used to pay costs eligible for forgiveness
    • The loan was used for at least 60% payroll
    • For borrowers using a 24 week covered period, no owner received more than the lesser of 2.5 months of 2019 compensation or $20,833
    • For borrowers using an 8 week covered period, no owner received more than the lesser of 2.5 months of 2019 compensation or $15,385
  2. The borrower understands that using funds for unauthorized purposes could result in recovery of funds by federal government and/or civil or criminal fraud charges
  3. The borrower verifies the amount of payroll and nonpayroll costs for which forgiveness is being requested
  4. The borrower has submitted required documentation to verify payroll and nonpayroll costs
  5. The information provided including supporting documents is true and correct
  6. The tax documents submitted are consistent with what has been submitted to the IRS or other state agency.
  7. The borrower understands that additional information may be requested.

In addition, borrowers must also submit supporting documentation with the application such as third party payroll provider reports, payroll tax reports, documents to substantiate nonpayroll costs, etc.

Please note that a borrower, together with its affiliates, received PPP funds totaling $2 million or greater cannot use this form. 

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