Q: I have a tentative deal to sell my agency to a trusted industry colleague, but I am concerned about how such a sale would affect my outstanding, six-figure Paycheck Protection Program (PPP) loan, if I go ahead with selling. On the one hand, I have read that Congress may pass a new relief bill providing for automatic forgiveness of all PPP loans under $150,000. On the other hand, if Congress fails to do so, I could be stuck paying it back because my bank loan agreement prohibits me from selling the business without the bank's consent. What are the odds that Congress will act, and if it doesn't, what are my options?
A: There are probably hundreds of travel-business owners facing these questions today. They need answers fairly urgently because they may not be able to hang on much longer.
Many legal and accounting experts are advising that prospective sellers' options are either to postpone the acquisition until there is greater clarity or to plan to repay the entire loan. I realize that such advice is not very useful if you need to act quickly and are short of money.
I would put the chances at 60/40 that Congress will approve automatic forgiveness of loans of less than $150,000. Both parties and houses of Congress favor such a provision, as does the Treasury Department.
However, with so much deadlock and blame-casting before the elections, you can't be certain that anything will pass or be signed by the president. So, you have to look at other options.
As noted in my July 27 Legal Briefs column, "Roadblocks to selling an agency with PPP loan," the Cares Act itself does not prohibit you from selling and being forgiven, but the typical promissory note that PPP loan recipients sign states that a change of ownership is an "event of default," unless the bank consents to the change. A few of my clients have told me that their bank will consent, but most have received no answer at all from their bank.
Assuming that you can't count on Congress or your bank, you may be able to structure an interim takeover by the buyer without a formal change of ownership. For example, you could appoint the buyer's company as the "manager" of your agency under an agreement that requires it to provide the necessary working capital to keep you afloat until PPP forgiveness is achieved.
Alternatively, you could lease your employees and independent contractors to the buyer in return for the buyer's promise to reimburse you for all payroll and related expenses until PPP forgiveness is achieved. Under both kinds of agreements, you would simultaneously sign an asset or stock-purchase agreement, but you would not close until the PPP loan is forgiven.
Prospective buyers and sellers should realize that there is no guarantee that these kinds of interim agreements will pass muster with banks or the government, so you need to reserve the right to undo them if necessary to obtain forgiveness of the PPP loan.