Orthotown October 2020 - 54

It is unknown if the SBA intentionally
created ambiguity in its documents,
but practice sellers, buyers and their
advisers must play the hand that
they've been dealt.
This sounds great, but if you're a practice
owner planning to sell your practice before
receiving official loan forgiveness from the
Small Business Administration (SBA), there
are hoops to jump through. According to the
PPP loan default provisions, practice owners
wanting to sell their practices before receiving
official SBA forgiveness must secure written
approval from the PPP borrower's local
lender through which the borrower's loan
applications were submitted and approved.
The CARES Act Section 1102 Lender
Agreement defines the lender as a federally
insured depository institution or credit union,
not the SBA. Here is a default provision of
the PPP Note: "The borrower reorganizes,
merges, consolidates or otherwise changes
ownership or business structure without the
lender's prior written consent."

Navigating a sale
Unfortunately, without SBA guidance,
what happens if a default occurs is unknown.
If borrowers in default later receive loan
forgiveness, default may be a nonissue. But
if practice sellers haven't received written
approval from their lenders or forgiveness
by the SBA, then at minimum, borrowers
deemed to be in default would need to repay
their PPP loans with interest, and more
serious consequences could occur.
Some bank presidents will not want to
stick their necks out by giving borrowers
written permission to sell their practices
before receiving SBA forgiveness. If they
do, that's great-just get their signatures

54

and be done with it. According to practice
acquisition lender Bill Murray of Lendeavor,
in some closings, the sellers gave notice to
their PPP lenders that they were selling
their practices and the lenders said nothing.
But this is not what the PPP note states; it
requires prior written consent.
If there is pushback from a PPP lender
that's reluctant to give prior written consent,
then a practice seller may need to place an
amount equivalent to the PPP loan in escrow
at closing to cover any future loan repayment
liability. It seems reasonable that if a PPP
lender received documentation of such until
a final determination of the borrower's loan
forgiveness status is determined, the lender
would give prior written consent to the sale
of a practice.
Stock sales of practices are treated differently, but if practice buyers are purchasing
practices through asset sales-through which
99% of all practices are purchased-then
buyers should not have exposure to risk
associated with PPP loans granted to sellers.
According to Monty Walker, CPA, lead
subject matter expert for the International
Business Brokers Association (IBBA), to
accommodate sellers so that some deals can
go to closing, buyers may agree to hire a
seller's management company that retains a
seller's employees until PPP loan forgiveness
criteria have been satisfied.
In a recent IBBA-hosted webinar, Gavin
Shea, Wells Fargo national director for
health care lending, shared that buyers who
use SBA loans to fund practice purchases
shouldn't be affected when buying a practice
that received PPP money.

Looking ahead
It is unknown if the SBA intentionally
created ambiguity in its documents, but
practice sellers, buyers and their advisers
must play the hand that they've been dealt.
It is best to have PPP lenders sign off on
all closings with all sellers who received
PPP loans prior to official forgiveness.
Updates from the SBA may change these
conclusions. ■

OCTOBER 2020 // orthotown.com

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Orthotown October 2020

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