Nothing in the CARES Act, Interim Final Rules, or Frequently Asked Questions currently requires Lender’s Consent in connection with a change in control transaction. However, the specific terms of the PPP Note signed by the borrower may require the Lender’s consent in a variety of situation.

(Note: This is one post in a series of posts regarding questions about the Paycheck Protection Program and Loan Forgiveness. A list of questions addressed so far is also available on our PPP Resources page. These questions and our answers are based on discussions with colleagues and clients, both lenders and borrowers. Our intention is to cover issues that, while potentially frequently asked, are not explicitly addressed in official FAQs or directly in Interim Final Rules. Our answers may ultimately be subject to change as additional guidance is provided, but reflect our view of the regulations at the time of posting.)

Update October 4, 2020: The SBA has published a Procedural Notice outlining when and how SBA pre-approval of a Change of Ownership is required. The Procedural Notice provides, among other things, that a PPP borrower must notify its Lender in writing of any contemplated change of ownership transaction and provide the Lender with copies of the transaction documents. The Procedural Notice provides certain situations where the PPP Lender may approve the Change of Ownership without SBA pre-approval, and other situations where the PPP Lender may not unilaterally approve the Change of Ownership. Read our summary of the SBA Procedural Notice on Changes of Ownership under the Paycheck Protection Program.

Consistent with SBA PPP FAQ #19, no specific form of PPP note was required to be used by lenders. Each lender was authorized to use their own promissory note or an SBA form of promissory note. Many, but by no means all, PPP lenders ultimately used the SBA Standard Loan Note on Form 147 as the base of their PPP promissory notes.

The SBA Form 147 note provides that it is an event of default if, among other things, the borrower “reorganizes, merges, consolidates, or otherwise changes ownership or business structure without Lender’s prior written consent.” If this, or comparable, language is included in the PPP borrower’s note, then it would certainly be prudent to obtain the lender’s prior consent to any change in control transaction.