How do lenders think about pari or junior debt on top of $5M SBA loan?

May 23, 2025

by a searcher in New York, NY, USA

I am a searcher looking at a very attractive $10M deal and am having lender conversations. I would like to structure a deal with a $5M SBA loan, $2M seller note, and $2M of pari or junior debt, with the rest as equity. Any guidance or comments how banks think about pari or junior debt on top of the $5M SBA loan? Of course, the SBA loan is 75% guaranteed but anything on top of that is not and the lender is naked. Are there banks or lenders out there that will lend in this structure and won't require collateral? This is a services based business and we are under LOI.

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Reply by a lender
from University of Wisconsin in Madison, WI, USA

Happy to offer some insight here based on my experience. Most lenders I work with at Pioneer Capital Advisory tend to view pari passu or junior debt structures with a fair bit of scrutiny, especially when layered on top of SBA 7(a) financing. One of the first things they look for is a strong borrower profile — ideally someone with a solid personal financial statement and at least six figures (or close to it) in post-closing liquidity. That level of cushion goes a long way in establishing lender confidence, particularly in deals involving service-based businesses without hard collateral. For transactions structured with pari passu senior debt, the banks I work with typically require a minimum DSCR of 1.60x. That’s notably higher than the baseline 1.25x you’ll see on traditional SBA-only deals, but it's consistent with the added credit risk involved when conventional financing over and above standalone SBA 7(a) financing. If it’s helpful, I’ve closed several deals with this type of structure and currently have one in closing involving $5 million in SBA 7(a) financing and $3 million in conventional senior debt. I’d be glad to compare notes or share what’s worked well in those transactions. Feel free to reach out — my email is redacted Best of luck as you continue the process under LOI.

Reply by an intermediary
in New York, NY, USA

It's difficult to get SBA Pari Passu for a significant amount above the $5m SBA cap if it's an "airball" i.e. not collateralized. Typically a strong PG is required in that case. Many times it's easier to get SBIC or private credit for amounts of $7m or more. There's more of a focus on the cash flow and less on collateral, especially since you usually don't need a personal guarantee. The tradeoff is a slightly higher cost of capital, but even there you can get a favorable structure with less or zero amortization (interest-only). If you'd like to discuss further, feel free to ping me at redacted We have over 20 SBA Pari Passu lenders and over 325 lower-middle-market (non-SBA) lenders on our CapFlow platform.

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