Pari Passu Loans Fund Debt Without Giving Up Equity
For the Lower Middle Market up to $10 Million!
What is Pari Passu?
Pari Passu loans are a pretty simple concept where someone’s $5 million of SBA 7a exposure is maxed out. Then an additional conventional note is added in what is considered a Pari Passu position for up to an additional $5 million.
Pari Passu has Latin roots, meaning “on equal footing” or “side by side”. This gives equal protection to both loans.
Both loans will be based on a 10, 25, or blended amortization, depending on whether there’s real estate involved or not. However, real estate is not needed or other hard assets to back up the loan.
Our financier is a cash flow lender so we can base this on the enterprise’s value or the cash flow of the business. We have structured and advised Pari-Passu loans for trucking, janitorial, construction, IT, business services, retail, and many other industries.
Why Pari Passu Might Be Your Best Loan Option
Don’t give away equity when you can use debt. Our bank has created a new non-equity debt funding product for the lower middle market, up to $10 million.
Introducing Pari Passu debt loans! Why give away a percentage of your business when you don’t have to! Giving away equity usually comes with giving away control and profits that you can keep in your pocket instead of investors. These investors may not even have your company’s best long-term interests in mind anyway.
Why Pari Passu Might Be Your Best Loan Option
Don’t give away equity when you can use debt. Our bank has created a new non-equity debt funding product for the lower middle market, up to $10 million.
Introducing Pari Passu debt loans! Why give away a percentage of your business when you don’t have to! Giving away equity usually comes with giving away control and profits that you can keep in your pocket instead of investors. These investors may not even have your company’s best long-term interests in mind anyway.
10 Reasons Why You Should Not Give Up Equity If You Don’t Have To
01.
Our Funding Source Can Provide up to $10M in Non-equity Debt Funding
Your 7A Exposure limit of $5 Million is maxed out. Then a conventional note in what is considered Pari Passu position can be added for up to an additional $5 million in funding. This way you are funded with non-equity debt.
02.
You Will Lose Control of Part of Your Company with Investors and That Is Just a Fact
You will always have to answer to someone if you give up equity in your company, and this might be a very difficult concept for an entrepreneur to swallow. Sometimes freedom was the sole reason they got involved in building a company in the first place and part of this would be taken away. You might not be able to go golfing anymore on a Friday afternoon in the summer because your investors might need to see you in the office doing something to make them money at that time. Sorry. Non-equity funding can keep you on the course.
03.
Investors Might Only Care about Rate of Return and That’s It
Sometimes investors will have a very short view of the situation because they only intend to be involved in the company for a short period of time. They might demand a certain rate of return, let’s say 10 or 20 percent on their money, even though that might not be what is best in the long term for the company. Not when you go the non-equity funding route.
04.
Debt Is a Good Thing If It Can Be Serviced Properly
If there is enough cash coming in to service debt, what do you have to worry about? Past performance of a company will always be analyzed to determine debt service, so all you have to concern yourself with is managing the company to the best of your ability. The money should be there to pay down the debt sufficiently.
05.
Diluting Your Ownership Will Make It Harder to Raise Future Funding
We have seen enough episodes of “Shark Tank” to understand that when you already have a high number of equity shares outstanding, it makes it very unappealing for new investors to come into the picture. Then their shares get diluted with other,s and it can really make the situation messy. Non-equity Pari-Passu loans using debt can prevent this problem.
06.
Diluting Capital Will Make It Harder to Sell the Company in the Future
When you have a lot of chefs in the kitchen it always makes it harder to do anything. Especially when you are selling a company because everyone will have their own ideas about value, etc. Because of this, potential buyers may be less interested in buying a company that is more heavily diluted. It is much easier to negotiate with one owner than 10 owners.
07.
You Keep All the Profits Rather than Sharing with Investors
This is a no-brainer. When you are the only one, you are the only one you will have to pay. Enough said.
08.
Equity Partners Could Overthrow the Original Entrepreneur (It’s Happened)
There are horror stories about these takeovers, and we have seen some of these scenarios play-out throughout the years. Remember the guy from “Men’s Warehouse” who was on all the commercials. You haven’t heard him on a commercial lately saying “You’re gonna like the way you look, I guarantee it”. That’s no coincidence.
09.
It’s Stressful If You Can’t Get along with the Investors Down the Road
It is obvious that when you don’t get along with people or they don’t share the same vision as you for the future there will be stress. This will affect every aspect of your life and could even affect your health. Sometimes, life is too short to get into a situation that could lead to this, so if you have to go into debt to avoid it, maybe it is for the best.
10.
50% of Marriages End up in Divorce…This Is a Lot Like a Marriage
Partners in business are much like partners in life. You are connected financially in many of the same ways you would be if you were married. If you don’t believe me, you have either never been married or never been in a partnership before. When partnerships fail it can be devastating to all involved, much like a divorce. My advice is to think about that before you jump into a partnership and possibly look into alternatives like non-equity debt if it’s feasible to fund your needs.
Pari Passu Loans Funded These Deals
$10 Million Trucking Company Acquisition: Just Some Trucks & Cash-flow!
The owner of a very successful trucking company was finally ready to hang ’em up after 30 illustrious years in business. He specifically wanted someone to come in and take over his life’s work, a legacy buyer who would run it just like he did! Sam was a successful executive who was searching for something different and specifically wanted something in logistics. Now here’s the biggest question. How was Sam going to finance a $10 million trucking company?
This business did not have a real estate component. It had a ton of refrigerated trucks and some real good cash flow that was sufficient enough to make our funding source comfortable with providing $7.5 million in total loan dollars over a 10-year period. Here is the breakdown on this one: First $5 million using an SBA 7A structure and $2.5 million in a conventional loan in Pari Passu position. Sam put in $1 million of his own money, and a seller note of $1.5 million covered the remaining balance. All in a day’s work!
$7.7 Million of Funding for a Maintenance/Janitorial Company in Alaska!
Adam worked all over the globe in the oil and gas industry, and it was taking its toll on him. He found this maintenance business in his home state of Alaska that could possibly be the start of an empire. Our funding source structured this acquisition with an SBA 7a for $5 million and a conventional note for $977K in a Pari Passu position. Adam wanted the seller to hold $960K which our bank allowed, and he injected the remaining $780K in cash, which was approximately 10% of the total project cost. Not bad for a company that was pretty much all blue sky with not many hard assets at all.
And People Say There is No Loyalty Anymore...Not in this $9.5 Million Framing Company Acquisition!
Two long-time employees of a wood framing market leader in Colorado wanted to purchase the company from the current owners. The current owners were absolutely thrilled to be selling to someone in the organization itself. Now, financing a $9.5 million business acquisition is never an easy feat! We structured $5 million SBA 7a in first position, along with a conventional loan in Pari Passu position for $710K. This also included $600K in working capital, which was needed to keep the business afloat for the first 6 months.
The buyers came in with a little more than $1 million in cas,h and the current owners actually agreed to a $3 million seller note on the difference. They really wanted these two long-time loyal employees to have the business because they knew their life’s work would be in good hands!
Buyer Only Had $2.3 Million in SBA Eligibility Left & Needed $5 Million for Another Acquisition
Arthur and Daniel were trying to purchase a door and millwork company in Florida for just under $5 million. However, they were having issues with the financing because they only had a certain amount of SBA eligibility left. So here is a unique way we advised on the structure of this acquisition.
Our funding source did the first note of $2,277,000 as an SBA 7a to max out their limit. Then, they did another $1,503,000 as a conventional note in Pari Passu position. The buyers came in with $627,500 in cash, which was approximately 13% of the total project cost along with a $400K seller note to complete the capital stack.
Success Stories
$9+ MILLION Pari-Passu Deal… The BIGGEST We have Done Yet!
$5.7M Acquisition Loan for a Four-Decade Ohio Construction Company
