2021 was the year some small business owners simply gave up.  When the government changes the rules seemingly every week it can be difficult to keep up.  Owners who were thinking about selling before the pandemic may have decided to hasten their departure and ride off into the sunset leaving COVID regulations worries far behind.

But what do business owners selling during COVID have to consider in relation to their COVID relief funds?  First and foremost, owners wishing to sell should seek forgiveness of their PPP loan(s) if they have not already done so.  The rules governing the second wave of loan forgiveness are still in flux, but by now everyone should have the information together to seek forgiveness on PPP Part 1.

Costs eligible for forgiveness must include 60% of payroll costs over the loans covered period, which may be 8 or 24 weeks at a borrower’s discretion.  The noncash compensation includes employer contributions for employee group health, dental, vision, life and disability insurance; employer contributions for employee retirement plans, and state and local taxes assessed on employers for employee compensation (primarily state unemployment tax).

Even though much is included in forgiveness, some business owners still worry their loans will not qualify for forgiveness, and some who have applied have not yet received forgiveness.  Still others have accepted PPP2 funds, which may not yet be eligible for forgiveness, and others have also accepted EIDL funds (disaster relief funds loaned directly from the SBA), which will need to be paid back.

When buying a business make sure you know the status of all COVID relief funds.  If the business has not yet received forgiveness for its PPP loan(s) then a buyer may want to wait before closing.  A seller may also want to wait any bank that handled the loan will want the seller to hold PPP funds in escrow while waiting on SBA approval for forgiveness. 

Both parties should agree to work with each other to assist in finalizing PPP forgiveness post-closing.  Also, at this time the SBA has offered no formal forgiveness on EIDL loans, but such loans did not require personal guarantees.  Buyers will want proof that any such loans have been paid off at closing, particularly since those loans are secured by the assets of the business. Business owners that have taken EIDL funds may want to hold out prior to finalizing any business closing because there is always a possibility more relief or forgiveness may be forthcoming.