- Pari passu lending combines an SBA 7(a) loan ($5M max) with a conventional loan to finance acquisitions in the $6M-$12M range.
- Both loans share equal priority in collateral—neither is senior or subordinate to the other.
- Buyers still get SBA benefits (10-15% down, 10-year terms) while accessing capital for larger deals than SBA alone allows.
- Not all lenders do pari passu—you need banks with both SBA and commercial lending capability.
- What is pari passu lending?
- How SBA pari passu structures work
- What deal sizes work for pari passu?
- Requirements for pari passu financing
- Finding pari passu lenders
- Structuring a pari passu deal
- Advantages over other financing options
- Challenges and how to overcome them
- Real pari passu deal examples
- Frequently asked questions
When a business acquisition exceeds the SBA’s $5 million 7(a) loan cap, many buyers hit a wall. The deal economics work, the business is strong, the seller is ready—but the financing doesn’t fit.
This is where pari passu lending comes in. It’s the financing structure that makes $6M to $12M acquisitions possible with SBA 7(a) terms, and it’s one of GoSBA Loans’ core specialties.
What Is Pari Passu Lending?
Pari passu is Latin for “on equal footing.” In lending, it means two or more lenders share equal priority in collateral and repayment—neither is senior or subordinate to the other.
For SBA business acquisitions, a pari passu structure typically combines:
- An SBA 7(a) loan up to the $5 million maximum, plus
- A conventional bank loan for the additional financing needed
Both loans sit at equal priority. If the business were liquidated, proceeds would be split proportionally between the two lenders rather than one being paid first.
Without pari passu, acquisitions over $5 million face limited options: all-conventional financing (higher rates, 25-30% down, shorter terms), private equity (give up significant ownership), or walk away. Pari passu preserves SBA benefits—10% down, 10-year terms, capped rates—while enabling larger deals.
How SBA Pari Passu Structures Work
The Basic Structure
In a typical pari passu arrangement for a $7 million acquisition:
| Component | Amount | Terms |
|---|---|---|
| SBA 7(a) Loan | $5,000,000 | 10 years, Prime + 2.75% |
| Conventional Loan (Pari Passu) | $1,300,000 | 10 years, Prime + 3.5% |
| Buyer Equity (10%) | $700,000 | — |
| Total | $7,000,000 |
Key Structural Elements
Same Lender vs. Different Lenders
Pari passu deals can be structured two ways:
- Single-bank pari passu: One bank provides both the SBA and conventional portions. This is simpler and faster.
- Multi-bank pari passu: Different banks provide each portion. More complex, requires an intercreditor agreement, but sometimes necessary when a single bank won’t do both.
At GoSBA Loans, we typically pursue single-bank structures first—they close faster and have fewer coordination issues. When two banks are involved, an intercreditor agreement governs how collateral is split, which lender can act in default, and how modifications are handled.
Cross-Default and Collateral Sharing
Both loans typically contain cross-default clauses: defaulting on one loan triggers default on the other. Business assets, real estate, and personal guarantees secure both loans proportionally. A $5M SBA loan and $1.3M conventional loan would split collateral roughly 79%/21%.
What Deal Sizes Work for Pari Passu?
The Sweet Spot: $6M to $10M
Pari passu works best for acquisitions in the $6 million to $10 million range:
| Deal Size | Recommendation |
|---|---|
| Below $5.5M | Standard SBA 7(a) covers the deal—no pari passu needed |
| $6M – $10M | Ideal for pari passu. Conventional portion is manageable (20-50% of total) |
| $10M – $12M | Still possible, but requires strong buyer financials and excellent cash flow |
| Above $12M | Conventional or PE typically makes more sense—SBA portion too small |
The largest pari passu deals we’ve closed have been in the $10-12 million range.
Requirements for Pari Passu Financing
Business Requirements
| Requirement | Standard SBA | Pari Passu |
|---|---|---|
| DSCR (Debt Service Coverage) | 1.15x – 1.25x | 1.25x – 1.35x (higher bar) |
| Years in business | 2+ | 3+ preferred |
| Revenue stability | Consistent | Growing or very stable |
| Industry risk | Moderate tolerance | Lower risk preferred |
Buyer Requirements
| Requirement | Standard SBA | Pari Passu |
|---|---|---|
| Credit score | 680+ | 700+ preferred |
| Industry experience | Relevant | Direct/management level |
| Net worth | Varies | Often 50%+ of loan |
| Post-close liquidity | 3 months | 6+ months |
| Equity injection | 10% | 10-15% |
Lenders apply stricter standards to pari passu deals because: larger loan amounts mean more risk exposure, shared collateral reduces recovery in worst-case scenarios, and deal complexity requires borrowers who can manage sophisticated transactions.
Finding Pari Passu Lenders
The Challenge
Not every SBA lender does pari passu. Many banks:
- Don’t have the internal expertise to structure these deals
- Have loan size limits that make the conventional portion impossible
- Prefer simpler transactions with less coordination
What to Look For
Banks that successfully do pari passu typically:
- Are SBA Preferred Lenders (PLP) with delegated authority
- Have a commercial lending team alongside their SBA team
- Handle larger loan sizes ($3M+ regularly)
- Have experience with business acquisition financing
At GoSBA Loans, we maintain relationships with the subset of lenders who actively pursue pari passu deals. We know which banks have appetite for the conventional portion, what structures each lender prefers, and current capacity at each bank. Approaching banks individually without this knowledge often results in wasted time on lenders who can’t execute.
Structuring a Pari Passu Deal for Approval
Step 1: Optimize the Equity Stack
The ideal pari passu capital stack:
- SBA 7(a): $5 million (maximum)
- Conventional: As little as possible while completing the deal
- Seller note (if applicable): Can reduce bank financing needs
- Buyer equity: 10-15% of total transaction value
Step 2: Negotiate Favorable Deal Terms
Terms that improve pari passu approval odds:
- Seller training/transition period: Shows continuity
- Seller note on standby: Reduces conventional portion, demonstrates seller confidence
- Key employee retention: Reduces operational risk
- Real estate inclusion: Provides strong collateral
Step 3: Prepare Comprehensive Documentation
Pari passu deals require more thorough documentation:
- 3 years of tax returns (business and personal)
- Monthly financial statements (trailing 24 months)
- Detailed projections with assumptions
- Business plan addressing transition and growth
- Buyer resume emphasizing relevant experience
Step 4: Target the Right Lenders
Submit to lenders with proven pari passu track records. Expect term sheets within 2-3 weeks from serious lenders.
Advantages of Pari Passu Over Other Options
Compared to All-Conventional Financing
| Feature | Pari Passu | All-Conventional |
|---|---|---|
| Down payment | 10-15% | 25-30% |
| Term length | 10 years | 5-7 years |
| Interest rate (blended) | ~11-12% | ~12-14% |
| Monthly payment (on $7M) | ~$95,000 | ~$130,000+ |
Bottom line: Pari passu can save $400,000+ over the life of the loan compared to conventional-only financing on a $7M deal.
Compared to Private Equity
| Feature | Pari Passu | PE Partnership |
|---|---|---|
| Ownership retained | 100% | 50-70% |
| Control | Full | Board oversight |
| Exit timeline | Your choice | PE-driven (3-7 years) |
| Upside capture | 100% | Shared with PE |
Challenges and How to Overcome Them
Challenge 1: Limited Lender Pool
Problem: Few banks do pari passu well
Solution: Work with a broker who has established relationships with pari passu-capable lenders
Challenge 2: Longer Timeline
Problem: Coordinating two loan components takes time
Solution: Pursue single-bank structures when possible; start early; prepare thorough documentation upfront
Challenge 3: Higher Qualification Bar
Problem: Lenders are more selective on pari passu deals
Solution: Strengthen your application with additional equity, relevant experience, or key employee retention agreements
Challenge 4: Seller Impatience
Problem: Sellers may not want to wait for complex financing
Solution: Set realistic timeline expectations in the LOI; demonstrate you have the right financing partner; offer earnest money to show commitment
Real Pari Passu Deal Examples
Case Study 1: HVAC Services Company
| HVAC Company — $6.8M Acquisition | |
|---|---|
| Business | Commercial HVAC, $8.5M revenue, $1.3M SDE |
| SBA 7(a) | $5,000,000 |
| Conventional (pari passu) | $1,120,000 |
| Buyer equity | $680,000 (10%) |
| DSCR | 1.32x |
| Timeline | 95 days from LOI to close |
| Key factor | Buyer had 12 years HVAC experience; recurring service contracts |
Case Study 2: Manufacturing Acquisition
| Precision Machining — $9.2M Acquisition | |
|---|---|
| Business | Precision machining, $12M revenue, $2.1M EBITDA |
| SBA 7(a) | $5,000,000 |
| Conventional (pari passu) | $3,280,000 |
| Seller note (standby) | $500,000 |
| Buyer equity | $920,000 |
| DSCR | 1.28x |
| Timeline | 110 days |
| Key factor | Seller note reduced conventional portion; real estate collateral |
Case Study 3: Healthcare Services
| Physical Therapy Practice — $7.4M Acquisition | |
|---|---|
| Business | Multi-location PT practice, $6.2M revenue |
| SBA 7(a) | $5,000,000 |
| Conventional (pari passu) | $1,660,000 |
| Buyer equity | $740,000 |
| DSCR | 1.35x |
| Timeline | 88 days |
| Key factor | Buyer was licensed PT with practice management experience |
If you’re targeting a business acquisition in the $6M to $12M range, pari passu may be your best path to ownership. You get most of the benefits of SBA financing—low down payment, long terms, capped rates—while accessing the capital needed for larger deals. The key is working with lenders and brokers who understand these structures and can execute efficiently.
Frequently Asked Questions
No. Pari passu requires a bank that can provide both SBA and conventional financing, or coordinate with another lender via intercreditor agreement. Many SBA lenders lack the commercial lending infrastructure or appetite for these deals.
The blended interest rate is slightly higher because the conventional portion carries a higher rate than SBA-guaranteed debt. However, the terms are still far better than all-conventional financing.
Typically 90-120 days from LOI to close—about 2-4 weeks longer than a standard SBA deal due to the added complexity of coordinating two loan components.
Yes—and we recommend it. A seller note on standby terms can reduce the conventional portion, improve DSCR, and signal seller confidence to lenders.
Multi-bank pari passu is possible with an intercreditor agreement, but it’s more complex. This is where broker relationships become essential—we know which banks will participate in multi-lender structures.
No. Pari passu is used for business acquisitions, not startup financing. The business must have established cash flow to support the combined debt service from both loan components.
