Ok, so what happens when your client is trying to purchase a business for $4.8 million dollars and they only have around $2.3 million in SBA eligibility left because they currently have a $2.7 million SBA loan outstanding? Can you say “Pari-Passu”? That is the only structure that would work for this transaction, and there are very few banks or lenders who will even consider this as an option. Let me explain.
Arthur and Daniel were trying to purchase a door and millwork company in Florida for just under $5 million. However, they were having issues with the financing because they only had a certain amount of SBA eligibility left. So here is a unique way we structured this acquisition.
Now let me preface this with the fact that we are fortunate enough as a bank to be able to portfolio loans. MVB Bank does not need to sell its loans off into the secondary market as most SBA shops do in order to be able to fund more deals. This is due to the fact that we bank quite a few major casino groups throughout the country. We have plenty of depository income and don’t need to sell our SBA guarantees to keep the money wheel rolling. That is why we can structure loans on our terms and can be creative when we need to be. This deal required that type of creativity.
We required the buyers to come in with 13% of the total project cost or $627,500. The seller held a note of $400K as well. Like we said earlier, they still had just under $2.3 million in SBA eligibility, so we did the first note of $2,277,000 under an SBA guarantee. Then we did the second note of $1,503,000 in the second position without any SBA guarantee. This was a conventional bank loan in what we call the “Pari-Passu” position and totally allowed by the SBA.
There are not too many institutions really doing this structure at all, and most people in the industry aren’t even aware it exists. MVB Bank is one of the few and wants to be known as one of the players in this lower-mid market sector. We basically did a $2.22 million SBA loan for 10 years and then a second $1.5 million conventional loan for 10 years in order to get the deal consummated. It was a solid business with solid cash flow, so we don’t mind being in the second position without any guarantee for the $1.5 million.
We feel there is a great need for this product for those deals where the SBA is limited because of that $5 million limit, and the larger private equity firms shy away because they are looking for bigger fish to fry. Like a wise man once said, when there is a niche just try to fill it and great things will happen. That is exactly what MVB Bank is trying to accomplish with our Pari-Passu structures.