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How Could PPP Funds Affect The Sale Of Your Business

How Could PPP Funds Affect The Sale Of Your Business?

If your business received PPP (Paycheck Protection Program) funds from the CARES Act, how will it affect the sale of your business? The truth is, nobody really knows for sure at this point. We’ve spoken with different attorneys, CPAs, and SBA lenders over the past few weeks, so we wanted to share what they have said. Please keep in mind that all of the information and advice shared here is what we have been told by various professionals. As always, we recommend that buyers and sellers consult with their own attorney and CPA for legal and financial advice. 

In a perfect world, ideally the seller would get their PPP loan forgiveness before completing the sale of their business, so everything is nice and clean. However, if the time is right to sell or if there is a buyer making an offer to buy your business now, then there really isn’t an option to wait it out. Especially because at this point, we have no idea how long it will all take. Even after the covered period expires and a loan forgiveness application is filed, it could be months more before a final loan forgiveness determination is made. Furthermore, the forgiveness process is still very unclear at this time, as we are still waiting on the SBA to release information on how that is all going to work. Everyone is crossing their fingers that the SBA will grant automatic forgiveness for PPP loans under a certain amount (experts are speculating something like loans under $200,000), but nothing has been announced yet. 

If PPP funds were given to the business entity that is selling their assets, then the seller would be responsible for seeking loan forgiveness and/or repayment. So, we have been advised that these items should be done before/during a business sale transaction:


Sellers who have received PPP funds will need to disclose to their business broker and a buyer that they have received funds. 

Consult Loan Documents and PPP Lender

The seller should conduct a close review of their PPP loan documents to confirm the change of control, assignment, and sale of asset provisions and prohibitions. Some PPP loan documents might require the lender’s consent before entering into a transaction involving the sale of the business or substantially all of its assets. Sellers should communicate with their PPP lender and find out exactly what they can and cannot do, so that they don’t jeopardize their option to file for forgiveness. In the case where a seller is not allowed to dispose of their business assets, they might need to satisfy the loan prior to closing. Again, sellers should consult with their PPP lender, attorney and/or CPA for advice on how to handle this situation. 

Buyer and Seller Need to Communicate

If the seller is entitled to benefit from any loan forgiveness or has retained any post-closing PPP liabilities, the seller needs to make sure they have all of the documentation that they might need to file for loan forgiveness, or work out an agreement with the buyer to have access to any and all documentation that they might need to seek loan forgiveness months down the line. It will be down to buyer and seller to negotiate this aspect, and they each should consult their respective lenders, attorneys, and CPAs to seek advice on how to accomplish this.  

Consult CPA For Tax Implications

PPP loans may also present tax consequences that the parties should consider, so consulting their CPAs is the best course of action. We've heard from several different CPAs recently to make sure that PPP funds are properly accounted for in a business's books. They all agreed that PPP funds, since they are a forgiviable loan, are a liability and should not be marked as income. Therefore, PPP funds shouldn't be listed as income on a Profit and Loss report. As always, conslut with your CPA and/or bookeeper for further advice and instruction in this area. 

Prepare For A Possible Escrow Hold-Back

In the situation where a PPP loan isn’t satisfied before closing, because the seller wants to seek forgiveness, it is possible that a buyer could request the amount of PPP funds owed be kept in the closing agent’s escrow account post-closing. Sellers should be prepared for this type of request from the buyer, with the intent that the funds be disbursed back to the seller once PPP loan forgiveness has been granted. The purpose of this escrow hold-back would be to ensure that the buyer will not be responsible for the liability. Working out the details of this type of agreement would be up to the buyer, seller, and closing agent/escrow holder.  

Asset Sales And PPP

Most small business sales are asset sales, which means that the buyer is not purchasing the business entity owned by the seller. Because of that, most of the time the buyer is not taking on any liabilities of the seller’s business entity: they are simply purchasing the business’s tangible (fixtures, furnishings, and equipment) and intangible (DBA, email address, website, social media, phone number, client list, goodwill etc.) assets. Normally all liabilities are satisfied by the seller at closing or before closing. PPP funds are a challenge here, since it is a forgivable loan and sellers will most likely want to get forgiveness rather than repay the loan. However, in some cases, this might not be possible.

In Conclusion

Seek advice from your CPA, attorney, and PPP lender and make sure to communicate with your business broker as to any developments with your PPP loan forgiveness.