What to Know About Selling Seniors Housing With A PPP Loan – By Jeff Binder
The Paycheck Protection Program (“PPP”), funded by the CARES Act Stimulus package, provided a lifeline for many small businesses, including a significant number of senior housing providers. The nuances of the program run too deep to be adequately explained within this blog. However, as it relates to a seniors housing transaction, the implications of the PPP seem to be overlooked, or at a minimum misunderstood. The obvious benefits of a loan program that offered full forgiveness were often enough of an incentive for a borrower to apply even in the face of inconsistent, and seemingly everchanging, guidance. Further, regardless of the benefits, providers were engaged in a myriad of other battles related to COVID-19 that warranted their attention. If the thought of selling was present, it most likely did not come with consideration for the impact of the PPP loan.
Selling Seniors Housing With A PPP Loan – Can Be Done With Outstanding Balance
If the PPP loan is fully satisfied, and forgiveness notification secured, there are no additional change of ownership requirements. However, there is a fairly straightforward path to completing a sale even if there is a PPP loan outstanding.
First, the borrower must complete the loan forgiveness application and submit to the respective PPP lender. What is often overlooked is the requirement that the borrower must establish an interest-bearing escrow account with funds equal to the outstanding PPP balance. In this scenario, once the forgiveness process is completed the funds are released to the borrower/seller. Often, with proper planning, forgiveness of the PPP loan can be obtained prior to closing eliminating the need for the escrow. Given the SBA has 90 days to evaluate the Loan Forgiveness Application we advise the presence of an unforgiven PPP loan be disclosed as early as possible in diligence. If the Seller does not want to post the escrow as required, the path forward will require SBA approval which will certainly involve additional timing and risk mitigation measures.
Finally, the Purchase Agreement should contain language specific to the PPP loan, i.e., buyers should protect themselves by including a representation and warranty explicitly addressing the PPP loan. Through early acknowledgement of a PPP loan, and appropriate planning, the transaction should be able to move forward with little consequence. Additional information can be found at www.sba.gov.