PPP Loans and Their Effect on a Veterinary Practice Sale
Veterinary Practice Sales and Practice buy-ins are affected by the COVID-19 government support Payroll Protection Plan practice loans.
The government’s COVID-19 Payroll Protection Plan (PPP) loans (or possibly grants) have created questions for veterinary practice sellers and buyers that must be resolved before a practice sale or purchase should be closed.
Sellers are at risk depending on how the sale is structured (whether or not a sale will affect forgiveness), while buyers are at risk depending on the terms of the sale and the timing of the closing. Associate minority buy-in shareholders (equity purchasers) are at an even greater risk, due to the fact that they are buying into a business that may have much great liabilities than anticipated.
The PPP loans were originally scheduled to require 8 weeks to be used for payroll, facility rent or mortgage payment and utilities in order to qualify for forgiveness by the government supported local lenders. This was later revised to extend to 24 weeks as the required usage time.
In short, one of the questions that must be addressed is whether or not the employer (practice owner) will be able to use all of the proceeds in the correct timeline to be able to qualify for the loan forgiveness. If not, then the program becomes a low interest loan that will require a payback. If this loan is not forgiven, buyers must be aware that there may be a large liability due, which was not expected; especially if the balance sheet and purchase closing dates and terms are not clear as to whom the liability belongs and the money’s use.
Other conditions or terms that must be considered for a purchaser are that depending on the timing of sale closing, there should be a hold harmless agreement between buyer and seller to cover the post-closing possible liabilities that should stay with the seller in an asset sale.
This agreement should be part of the closing documents, even if the sale is a 100% sale of practice assets, due to the questionable timing requirements and the possible delay for the employer to receive the forgiveness documents from the lender and government (usually SBA). Sellers should all be careful to follow the program terms and timing to qualify for forgiveness.
Karl Salzsieder, DVM, JD, CVA.
Total Practice Solutions Group NW,
dba Salzsieder & Associates, TPSG, LLC