03 Aug The Impact PPP and SBA Loans Can Have on a Merger or Acquisition
As we continue to see uncertainty in the economy with several US states struggling to contain the COVID-19 outbreak, more and more businesses are relying on Federal stimulus to come through with a gift in the form of Paycheck Protection Programs (PPP) and Small Business Administration (SBA) loans.
While convenient and inexpensive (and possibly free) these liabilities are popping up on balance sheets during due diligence and buyers and sellers alike are struggling to make sense of the terms and conditions.
When looking to buy or sell it is crucial that you look closely at a company’s Balance Sheet and peel the onion back enough to see what those long term liabilities are.
PPP and SBA loans carry unique Change in Control provisions that require prior written approval by the lender before completing a transaction. Failure to obtain such approvals are cause for default and immediate repayment. Yikes. That on the heels of continued uncertainty surrounding what additional forgiveness grants may come out of further federal stimulus could quite possibly see many M&A participants lose out on the handup.
Make sure to cover provisions for transfer of ownership and change in control triggers. We have seen many deals require these loans to be paid out on close or carved out in chargebacks due to unclear or miss represented loan terms and conditions by the seller.
The best way to avoid surprises with liabilities is to ensure a thorough process is leveraged by an M&A advisor like Revenue Rocket.