I'm Beau Eckstein, your Business Ownership Coach | Investor Financing Podcast host, and in this post I want to walk you through a powerful but often misunderstood funding strategy: the pari passu SBA loan. In a recent episode I sat down with SBA loan adviser Bo Xeen—who's spent over 25 years structuring deals most lenders won't touch—to explain exactly how pari passu structures work, when they make sense, and why most lenders shy away from them.

If you're pursuing a larger acquisition or a real estate-plus-business buyout, understanding pari passu financing can be the difference between a deal that stalls and one that closes. This post captures the full breakdown from that conversation, plus practical steps, common pitfalls, and a checklist to use when you talk to lenders or advisors. As your Business Ownership Coach | Investor Financing Podcast host, I’ll share the real-world logic behind these split-lender structures and how to position your transaction for success.

What is a Pari Passu Deal?

Pari passu is a Latin phrase used in finance to describe two creditors standing on the same footing: in simple terms, both lenders share equal priority in first position. In the episode, Bo describes it plainly: there is an SBA loan and a conventional loan, and both sit in senior (first) position. That split allows borrowers to combine an SBA-guaranteed tranche with a conventional tranche so the bank can extend more overall financing than a single product would allow.

Why would you do this? Because SBA programs—especially when dealing with aggregate SBA exposure—have practical caps. For instance, an SBA lender is often effectively capped at $5 million of SBA-backed exposure on a deal. If you're looking at a $10 million purchase, pairing SBA with conventional financing under a pari passu structure can stretch the bank’s capacity without violating internal program limits.

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When Pari Passu Makes Sense

Pari passu is not a default choice for every deal. It shines when a transaction is larger than what SBA alone will comfortably fund or when a borrower and lender want to maximize leverage without sourcing multiple independent lenders. Typical scenarios include:

• Acquisitions where the purchase price exceeds the practical SBA cap
• Deals with substantial real estate value that lenders will accept as collateral
• Complex buyouts where a single lender is willing to provide both SBA and conventional portions

Because the SBA portion is often guaranteed (the SBA guarantees a percentage of eligible loans), combining it with a conventional tranche requires careful structuring. Lenders ask: is the combined package secure and cash-flowing enough to absorb risk? As your Business Ownership Coach | Investor Financing Podcast resource, I recommend running conservative cash flow projections and presenting clear collateral coverage when asking a bank to consider pari passu.

Real Estate vs. “Airball” (Non-Collateralized) Deals

One of the clear themes Bo emphasized: lenders love collateral. When real estate is part of the transaction, lenders find pari passu much more attractive because real estate provides tangible security. The majority of banks willing to do pari passu will prefer deals where property secures the loans.

That said, there are scenarios—referred to colloquially as “airball” deals—where the structure is used for non-collateralized business acquisitions. Bo noted that there are a handful of banks that will entertain pari passu on airball deals, but these are rarer and typically require exceptional cash flow and management track records.

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How Common Is Pari Passu and Which Lenders Do It?

Pari passu is a niche offering. Bo estimated that only a handful of lenders—maybe four or five, at most—are comfortable doing non-collateralized pari passu SBA deals. These institutions tend to have specialized credit appetite and are willing to pair SBA-backed exposure with an unguaranteed conventional tranche.

Typical structures Bo mentioned range from a $5 million SBA portion combined with $2–$4 million of conventional financing. However, structures and maximums vary by lender and by the specifics of collateral and cash flow. As your Business Ownership Coach | Investor Financing Podcast guide, it’s critical to identify which lenders on the market are open to pari passu before you finalize your acquisition strategy.

Steps to Getting a Pari Passu Deal Done (and Common Pitfalls)

Bo broke down the practical workflow for getting these deals across the finish line:

1. Identify the small universe of lenders who will consider pari passu structures.
2. Engage 3–5 of the most probable lenders to test appetite and gather term sheet feedback.
3. Narrow the field to one or two lenders and run the deal concurrently to create urgency and leverage.
4. Address the “hair” on the deal—any red flags around cash flow, collateral, or borrower experience—upfront.
5. Prepare for tighter scrutiny on the conventional tranche because it is unguaranteed.

Common pitfalls include assuming every SBA lender will do pari passu (they won’t), failing to present strong collateral or cash flow, and neglecting to shop the deal to the right lenders. Bo emphasized that the art of these deals is not fundamentally different from other financing—it's the limited number of funding sources and their appetite that make them tricky.

Why Most Lenders Avoid Pari Passu

At the heart of lender reluctance is risk allocation. The SBA-guaranteed portion transfers a large chunk of credit risk to the federal government—typically a high percentage of the SBA tranche. The conventional tranche, by contrast, carries no federal guarantee. That asymmetry leaves the lender exposed to additional loss on the unguaranteed portion.

Many banks prefer to originate products that are fully covered by SBA guarantees or to lend in markets where their conventional underwriting is proven. For banks with a national SBA footprint, adding an unguaranteed conventional exposure in a different market or sector increases complexity and downside risk. That’s why many lenders simply don’t offer pari passu options.

Is Pari Passu Right for Your Deal?

If your deal is teetering because SBA alone won’t stretch far enough, pari passu may be the creative solution you need. Ask yourself these qualifying questions:

• Does the transaction include real estate or other strong collateral?
• Is the business cash flow predictable and sufficient to service combined debt?
• Do you have realistic projections and documentation that a lender can underwrite?
• Are you willing to engage specialty lenders rather than relying on a single, mainstream SBA bank?

When the answers are “yes,” you and your adviser should pursue the pari passu route. As your Business Ownership Coach | Investor Financing Podcast host, my final recommendation is to document everything and be proactive about running the deal to multiple specialist lenders simultaneously. That competitive dynamic often produces the best term sheets.

Final Checklist Before You Reach Out to Lenders

• Complete three years of financials and a realistic 24–36 month cash-flow forecast.
• Obtain a recent appraisal (if real estate is involved) and title review.
• Prepare a concise executive summary explaining why pari passu is appropriate.
• Identify and contact the small list of lenders experienced with pari passu.
• Be ready to run the package to at least two lenders simultaneously to secure leverage.

Conclusion

Photo by Mina Rad on Unsplash

Pari passu SBA loans are not for every borrower or every bank, but when used correctly they unlock the ability to fund larger and more complex transactions. From Bo’s experience, the strategy works best when backed by real estate, strong cash flow, and a lender willing to accept both SBA-guaranteed and unguaranteed exposure. If you’re serious about a big acquisition or real estate-plus-business purchase, don’t assume the first “no” is the final answer.

As your Business Ownership Coach | Investor Financing Podcast host, I encourage you to prepare carefully, shop your deal to the right lenders, and bring the documentation that demonstrates stability and collateral coverage. If you want help exploring whether a pari passu structure is right for your purchase, book a call with an experienced adviser who can map the lender universe and run parallel submissions for you.

Ready to take the next step? Book a call and let's evaluate whether pari passu can get your deal funded.