Over the last few months, dealmakers have worked creatively in M&A transactions to give borrowers of PPP loans the benefit of their bargain with the government—forgiveness of the loan—rather than treat the PPP loan as outstanding debt requiring discharge at closing (which would typically result in a further reduction in the purchase price). One piece of the forgiveness puzzle was how to obtain the SBA’s consent—which has generally been viewed as a required consent in connection with a change-of-control transaction—without creating delay to reach either a signing or closing.
As described in the alert below, the SBA released guidance regarding the consent requirements and procedures for PPP borrowers undergoing a change of ownership, providing some welcome clarity for those borrowers that may be considering an M&A transaction (keep in mind that this guidance only relates to circumstances where SBA consent is required in connection with a change of ownership, and does not address the approval rights a PPP lender may have under the loan documentation with respect to a borrower’s change of ownership). Although the guidance is certainly welcome, there is still uncertainty around the time it may take for the government to grant forgiveness. And, because the guidance calls for the funds to remain in escrow until forgiveness is granted, parties will still need to agree on who controls the forgiveness process post-closing and how long each party is willing to wait for the government to conclude that process.
That said, having a way to plan transactions without SBA consent is welcome and an encouraging development for PPP borrowers who may have otherwise agreed to forego the chance at obtaining forgiveness by virtue of their participation in an M&A transaction.