Covering Your Assets: Business sales, mergers and PPP forgiveness (Voices) |

Covering Your Assets: Business sales, mergers and PPP forgiveness (Voices)

Mike Bosma

Covering Your Assets

Michael Bosma
Courtesy photo

I am in escrow for a sale of a business. I represent the buyer, but the seller had received a modest PPP loan. They had not yet secured the forgiveness letter from the SBA. The seller was surprised, to say the least, when I asked the escrow company to set aside the PPP loan amount in escrow.

I recognize that many clients and friends are running up against PPP-related questions in a wide range of areas. In many cases, the final answers are not yet clear, but business owners should be aware of the various facets of PPP forgiveness, particularly the timing of the filing the application. 

Because of the disruptions and changing business plans and models caused by the COVID-19 pandemic, I am already seeing an uptick of people accelerating their decision to sell their company.

Here are some of the issues to consider in each area.

Sale of a business

In October, the Small Business Administration released Procedural Notice 5000-20057 (, which offered guidance on changes of ownership for an entity that has received a PPP loan.

The Notice defines “changes in ownership,” and sets forth rules when a PPP loan has or has not been paid off or forgiven, including when SBA prior approval for a change in ownership is or is not required.

Among the important details for CPAs and clients is the fact that, when a sale takes place and the loan has not been forgiven, the funds necessary to repay the loan will be held in escrow by the PPP lender until the loan is satisfied.

That may be a surprise for many small business owners. CPAs should caution clients that, in their planning, sellers who would usually expect 100% cash when the sale is completed should factor in the possibility that they may not immediately receive as much as they anticipate.


There are a number of issues to consider in relation to mergers when one partner has a PPP loan, including conflicts between different relief programs. Organizations are not allowed to have a PPP loan and receive an Employee Retention Credit, even after the PPP loan is forgiven.

What happens when two businesses decide to form a new entity and the relief packages they had already received don’t match? At the moment, the regulations don’t address what happens in this situation.

As they sort through what that may mean for planned mergers, clients may need more help with consulting and analysis in this situation to decide their best next steps.

Simplified application process for smaller loans

A PPP loan forgiveness application, Form 3508S, is available to borrowers with loans of $50,000 or less; or less than $2 million in total for affiliates.

A key question is whether it’s best to apply for forgiveness now or hold out for the possibility of a simplified forgiveness process down the road.

Clearly, sales of businesses and mergers are among the situations where the timing of forgiveness can have an impact, but you may find other situations affecting your reality as well.

Timing of forgiveness and tax deductions

Business expenses paid with PPP loans that are forgiven cannot be deducted for federal tax purposes as a result of IRS Notice 2020-32. Those eligible business expenses can include items such as payroll costs, mortgage interest, rent and utility payments.

That sounds straightforward, but taxpayers may still have a lot of questions based on the timing of their fiscal years and the timing of the covered PPP loan period and other issues.

For example, if an organization has received and used PPP funds for business expenses but the loan is not yet forgiven, are those expenses currently deductible? Similar questions may also come up for taxpayers trying to calculate estimated tax payments.

Another consideration regarding timing of forgiveness relates to the spate of SBA audits on those that have applied already. Intel from fellow business owners is that those that got the forgiveness applications in early had a very high incidence of SPA audit. Another reason to put off filing.

Great tools for business owners

As they monitor guidance and offer advice on PPP loans, practitioners can find a wealth of regularly updated information on the AICPA PPP resources site (

That includes the PPP, a free resource developed by the AICPA,, and fintech lender Biz2Credit to assist business owners and their accountants in automating the loan forgiveness application process for their PPP funding.

PPP loans have been a hot topic for clients throughout the pandemic, and that’s not likely to change any time soon.

If you need assistance with your PPP forgiveness, make sure you are getting advice from knowledgeable experts to help you navigate the process. You can also “Zoom-in” to a PPP forgiveness Lunch & Learn on 11/23. Contact me for details.

Mike Bosma, CPA, is Principal-in-Charge of the Reno office of CliftonLarsonAllen LLP. His NNBW column, “Covering Your Assets,” focuses on effective planning strategies for every business owner. He’s also the host of “Bosma on Business,” which airs Saturdays at 10 a.m. on Newstalk 780 KOH. Reach him for comment at