Today, we’re taking a deeper dive into the realm of Pari Passu debt in the commercial finance world.

You may wonder why you should care about this, especially in a world where equity financing hogs the limelight. We’re about to unveil a financial secret: debt is not the villain it’s often portrayed as.

When it comes to equity versus debt financing, it’s more like a well-balanced partnership. So, join us as we explore the fascinating world of Pari Passu and how it can benefit you in commercial finance. Why take on partners and give up equity in your company when you can finance?


Unpacking Pari Passu Debt

Before we dive into the nitty-gritty, let’s define our terms.

Pari Passu means a debt structure where creditors or lenders share an equal footing, with no one party having priority over the other.

It’s like a level playing field in the commercial financial world to help ensure fairness and transparency.


3 Types of Pari Passu Debt

1. Syndicated Loans

Syndicated loans are a prime example of how Pari Passu debt functions in the commercial world. In these types of deals, multiple lenders come together to provide funds to a borrower. The lenders share both the risks and rewards equally.

It’s like having a financial dream team, where each member contributes their share without overshadowing the others.

In syndicated loans, there are several benefits for the lenders and borrowers. The primary ones are risk-sharing flexibility and tackling more extensive financing needs without putting all your eggs in one basket.

2. Corporate Bonds

Corporate bonds are another place in the finance world where you’ll find Pari Passu clauses. They ensure that all bondholders, whether they hold large or small positions, are treated the same way regarding repayments and claims on assets.

This boosts investor confidence and can even lead to higher bond ratings.

3. Commercial Real Estate Financing

In the world of commercial real estate, Pari Passu debt guards both the investor’s and lender’s interests. It ensures that no party gets preferential treatment in the event of financial turbulence or asset distribution.

So, you’re selling or buying a commercial property? Pari Passu is there to make sure everyone plays by the same rules.


Using Pari-Passu Financing for Business Acquisitions

We know the challenges involved in the lower mid-market regarding financing as there aren’t that many choices. The deals are sometimes too large for SBA lending options and too small for Private Equity.

One solution is our Pari-Passu debt structures where we take someone’s $5 Million of SBA exposure limit and max that out. Then, we provide a second conventional note over and above this in a side-by-side or pari-passu position. In this case, we are able to fund up to $10 Million on one transaction and we do not need real estate or other hard assets to fully collateralize the loan.

Cashflow pays loans and not assets. We like financing healthy companies and working with seasoned buyers who understand the industry they are buying into. The most important component to this is proper DSCR or Debt Service Coverage Ratio which we like to be 1.5 or better on these Pari-passu structures.

We understand all the ins and outs of eligibility when it comes to pairing an SBA product with a conventional product. We are seasoned veterans when it comes to structuring these scenarios for all industry types from trucking and manufacturing to e-commerce and service businesses.


Frequently Asked Questions

What is the primary advantage of using Pari Passu debt over equity financing?

Pari Passu debt allows you to access capital without giving up ownership or control of your business. With equity financing, you often need to share ownership with investors, potentially diluting your control over crucial decisions.

Pari Passu debt, on the other hand, keeps your ownership intact while providing the necessary funds for acquisition and growth.

Is debt financing always more expensive than equity financing?

Debt financing can be more cost-effective than equity financing. While interest payments are a part of debt financing, they are typically tax-deductible, which can result in significant savings.

Additionally, you aren’t sharing profits with debt providers as you would with equity partners.

How can I mitigate the risk of default when using Pari Passu debt?

We will do all the upfront analysis of the business you are acquiring to make sure there is sufficient cash flow to service the debt. We won’t let you make a mistake when it comes to debt service.

Are there specific industries or business types that benefit more from Pari Passu?

We have structured Pari Passu for acquisitions of trucking, e-commerce, HVAC companies, electrical companies, plumbing companies, special service companies, manufacturing, and many more.


So, if you’re looking for guidance on business acquisition debt structures, including the dynamic world of Pari Passu, don’t hesitate to contact us, Ivanhoe Capital Advisors. We’re here to help you navigate the commercial finance waters and chart a course toward success.

Don’t Give Up Equity In The Business

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