SBA+conventional clarification
February 25, 2025
by a searcher from Duke University - The Fuqua School of Business in Denver, CO, USA
I have a few gray areas in some of my notes that I'm hoping to get cleared up.
Let's say you need to borrow $7M and an SBA qualified lender that offers an SBA + Conventional option.
1/ If the SBA rate on the initial $5M is 10%, what would the ballpark conventional rate be on the $2M? How much higher should I pencil in?
2/ With the SBA on a 10-year amortization, is the Conventional portion, the $2M in this example, also on a 10-year amortization or is it typically 7?
3/ If they are pari passu, and assuming the Conventional rate is higher, am I able to paydown the Conventional first (with any cash flow after required interest/principal payments)?
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
The Bank portion of the loan cannot exceed the interest rate on the SBA portion of the loan. The Bank cannot give themselves preferential treatment on their loan.
The amortization on the Bank loan must match the amortization on the SBA loan of 10 years. However, the term can be shorter. So you could have a two-year balloon note with a 10-year amortization.
Technically it would depend on the lender, but usually the lenders encourage you to pay down the Bank note sooner as that is the higher risk note for the Bank.
Please keep in mind Pari Passu loans are not easy to get done. I see a lot of people advertise them, but a very small percentage of them get done due to the higher risk they represent for the Bank. The deal has to be solid all the way around and relatively low risk, and often times the lenders want strong Guarantor support and some collateral. The underwriting criteria the Banks use is also much higher, usually minimum DSCR of 1.50x to 2.00x depending on the lender. I see a lot of people on stretch deals trying to get Pari Passu done when it is just not possible.
I am always happy to discuss or review any opportunities. You can reach me here or directly at redacted
from University of Southern California in Los Angeles, CA, USA