Buyer Risk for Unpaid PPP Loan in M&A Transaction


M&A Development

October 6, 2020


Unpaid PPP loans add a new risk for the buyer and seller of a business. The Small Business Administration published guidance on this M&A risk on October 2, 2020. Following the SBA guidance is important if a target business has an unpaid PPP loan balance which the target business wants all in part forgiven free of federal and possible state income taxation.

The deal

The area of concern relates to acquisition of target businesses with PPP loans that have not been paid off. But only for a target business with an unpaid PPP loan balance where the target business has not properly applied for forgiveness of the loan which is secured by the deposit with the PPP lender of the unpaid PPP loan balance in a PPP lender escrow account.

In such cases, the target business borrower must notify the PPP lender of the pending transaction and the lender must seek prior approval from the SBA to close the transaction. This approval process can take up to 60 days, according to the SBA guidelines.

The SBA will not approve an asset deal unless the buyer assumes the PPP loan liability. Furthermore, in a stock, asset or merger transaction according to the SBA guidelines: “If deemed appropriate, the SBA may require additional risk mitigation measures as a condition of its approval of the transaction.” 

What are the consequences to the M&A parties if they don’t follow the guidelines? The guidelines are silent on consequences. But it could include a loss of the right to obtain forgiveness and acceleration of the unpaid balance.

In addition, for asset buyers there is the possible risk of having a court unwind the acquisition as a fraudulent transfer or the buyer being held responsible for an unpaid PPP loan that the buyer did not assume under a successor liability theory.

The SBA guidelines are found at–Procedural-Notice–PPP-Loans-and-Changes-of-Ownership.pdf


The buyer should also see if the PPP loan documents contain additional change of ownership terms which must be complied with.

By John McCauley: I help people manage M&A risks involving privately held companies.



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Posted in deferred closing, governmental approval, PPP loan, SBA approval re PPP loan Tagged with: ,

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