The CARES Act Paycheck Protection Program (“PPP”) has provided much needed assistance to millions of businesses and other organizations impacted by the COVID-19 pandemic in the United States. This program, however, continues to be fraught with snares and traps for the unwary and the M&A space is no exception. To begin, any lender that participates in the PPP is required to utilize a promissory note to evidence each PPP loan it advances. Though the Small Business Administration (SBA) has provided a uniform promissory note, a PPP lender is not required to use such form and may instead opt to use its own form instrument. Nevertheless, the SBA form promissory note contains certain restrictions regarding changes in the business and ownership without lender consent (the specific default language are cases where a borrower “reorganizes, merges, consolidates, or otherwise changes ownership or business structure without Lender’s prior written consent”) and therefore, in the context of an acquisition of a PPP borrower, the promissory note evidencing a PPP loan must be reviewed to confirm whether or not there are any prohibitions contained therein that would require the consent of the PPP lender. If the PPP lender opted not to use the SBA form PPP loan promissory note, it is possible such lender’s PPP promissory note will be silent on the question of “change of ownership” or other similar restriction. In such cases, there is nothing under SBA regulations preventing a PPP borrower from allowing a change of control and the consequences for a PPP lender with such a form promissory note remain unclear.

Importantly, though the SBA regulations do not address asset acquisitions, the SBA has recently been informing PPP lenders that the SBA does not distinguish between an asset deal and “change of ownership” and therefore will expect a PPP lender to obtain SBA consent to any such transaction. As for timing, a PPP borrower seeking its PPP lender’s consent to an acquisition should expect anywhere from 2 to 6 weeks following the PPP lender’s request to the SBA for approval of the transaction (note: it is the PPP lender’s responsibility to obtain SBA approval). In sum, failure by a PPP borrower to obtain its PPP lender’s consent to an acquisition when it is the target and required to do so under the terms of a PPP loan promissory note could result in the denial of PPP loan forgiveness and may result in immediate repayment of the PPP loan.