The pari passu option is not often discussed or even well-known in the banking world . What’s more, most lenders – even many SBA lenders – are not yet aware of the pari passu arrangement. However, watch this episode to see how to structure these deals to get higher leverage with a relatively low cost of capital.
What does “pari passu” mean? Pari-passu is a Latin phrase meaning “equal footing” that describes situations where two or more assets, securities, creditors, or obligations are equally managed without preference. This means that a bank can share the first lien on a real estate asset with the SBA, thus mitigating a lot of their risk. Therefore, they are more likely to make a loan on the property.