Mergers and Acquisitions affected by PPP Loans
There is a lot of M&A activity occurring in the marketplace. Many businesses, given these uncertain economic times, are choosing to get out.
One of the unintended effects of the PPP Loan is that it is making these business transactions either more difficult or impossible.
Think about it. If you were buying a business that had a PPP Loan on the books, not knowing whether or not it would be forgiven, what would you do? Would you move forward? Maybe. Maybe not.
Let’s say that you’re the seller and were in the middle of a sale when the pandemic hit. You already received a letter of intent and were in the middle of completing due diligence when the pandemic hit.
You fill out your paperwork and get a PPP Loan. Given the impending sale, and the money that you would be receiving if the sale went through, did you actually have an economic need. If you’ll remember, that need was necessary to qualify for the loan in the first place?
Let’s say that you’re in the middle of a sale after receiving a PPP Loan. If you sell, maybe the business would no longer qualify for forgiveness, if the company you are selling to has more than 500 employees. Also, if you are selling to a private equity group, you might not qualify for forgiveness because investors were not allowed to receive these loans.
Also the continuing uncertainty given these political times and the ever changing laws have put many sales on hold. It’s hard to plan if you are expecting changes not knowing where a certain tax law will land.
The answer to these questions has become either to delay or escrow.
If you delay the sale until you figure out what will happen in the changing political climate, you might end up in a situation where the deal doesn’t go through. If you escrow the entire amount of the loan, that might stop a seller from wanting to sell in the first place.
These loans have had many unintended effects.
Let me leave you with this.
As the metrics for the C-19 epidemic continue to break records in Illinois, we may be seeing more roll backs which will further decimate the economy. This could happen just in time for the holiday season.
The Grinch might actually steal Christmas this year.
Fear is the issue. I realize how difficult it is to make plans in an environment like this, but plan you must. You need to have contingency plans in place for any potential eventuality.
What would you do if they shut down all non-essential businesses again? How would you survive? Do you have the resources in place to weather this storm?
Figure it out now. It will be a lot easier now than if you’re facing a shutdown tomorrow.
Take a look at your resources. Look at your numbers. Figure out who you would let go, Maybe you would just cut back some hours. Maybe you should apply for the EIDL Loan that you have been hesitating on.
Look at the worst case scenario and get comfortable with it. Also look at every step in between, knowing what you would need to do. Having a plan in place may be the only way you’ll get through this.
Do so knowing that we will be here with you, every step of the way.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. If there is anything you need, whether you are a current client or not, you have but to ask. I’m here and I remain,
Accounting Solutions Ltd.
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