The Paycheck Protection Program (PPP), created under the CARES Act, has provided much-needed economic facilities to businesses and other organizations affected by the COVID 19 pandemic. Until recently, however, PPP borrowers were unsure how their creditworthiness and ability to obtain credit could be influenced by transactions such as equity interest sales, mergers, restructurings, withdrawals and asset sales. This lack of clarity has often led to delays in transactions, raised concerns about the eligibility of the ppp and the granting of loans as a result of these transactions, and in some cases led borrowers to repay their P3 loans instead of risking breaking the law. For all sales or other disposals of common shares or other title deeds or mergers, whether or not the sale requires the prior approval of SBA, the PPP borrower (and, in the event of a merger of the PPP borrower into another entity, the borrower`s successor in PPP) is subject to all obligations arising from the PPP loan. If one of the new owners or successor has a separate PPP loan, the PPP borrower and the new owner are responsible for the separation and delineation of PPA resources and expenditures where (1) are responsible, in the event of an acquisition or other transfer of common shares or other property interests, for the separation and delineation of funds and expenditures in PPP and for the provision of documentation proving compliance with the requirements PPP by each borrower. , and (2) In the event of a merger, the successor is responsible for the separation and delineation of P3 credits and expenditures and the provision of documents proving compliance with the PPP requirements for the two PPP loans. An alternative to addressing the uncertainties associated with the forgiveness of P3 credits is to delay the closure until such a pardon is obtained. However, as noted above in the « Diligence » section of this section, it is likely that it is not possible to delay the transaction until the pardon of P3 loans arrives, as final approval of the amount of the pardon may take more than 150 days from the date of the application for forgiveness. If the post-closing activity was also eligible for a PPP loan, it is likely that an additional term loan would be granted. The parties should consider whether the PPP borrower`s activity continues to be decoupled from the buyer`s activity, as this would facilitate consideration of the use of PPP loan revenues, which would support arguments for a remission of the loan after closing. In addition, the SBA may require additional risk reduction measures as a precondition for approval of the transaction, but must provide a conclusion within 60 days of receiving a full application.
Finally, in cases where SBA authorization is required for an asset transaction, the purchasing company must assume all of the borrower`s PPA obligations through the PPP loan, including responsibility for compliance with the PPP loan terms (note that the purchase or sale agreement must contain appropriate language with respect to this commitment or that a separate acceptance agreement must be submitted to the SB).