When you sell an established business, the buyer’s own money and a bank loan often don’t quite reach the price. One common way to close that gap is for you to lend the buyer the difference. That’s a vendor take-back, and if you’re thinking about selling, there’s a good chance a buyer will ask about one.
What a vendor take-back is
A vendor take-back, or VTB, is also called seller financing or a seller note. Instead of receiving the whole price at closing, you receive most of it in cash and the rest in instalments, usually with interest, over an agreed period.
It isn’t needed in every deal. Whether it makes sense depends on the strength of the buyer, how the bank financing is set up and how much risk you’re prepared to carry.
Why buyers and banks ask for one
For the buyer, a VTB means less cash and less bank debt at closing. For the bank, it means a smaller loan. It also shows that you believe in the business enough to wait for part of your money.
For you, offering one can bring more credible buyers to the table and support a better overall price. The trade-off is plain: you stay exposed to the business after you’ve given up control of it.
How it fits with the bank loan
Here’s a simplified, hypothetical example. A business sells for $3,000,000. The buyer puts in equity, a bank provides a term loan, and you agree to a VTB for part of the price.
| Source | Amount | Where it ranks |
|---|---|---|
| Bank term loan | $1,800,000 | Repaid first, secured |
| Vendor take-back | $450,000 | Behind the bank |
| Buyer’s equity | $750,000 | First to be lost if things go wrong |
| Purchase price | $3,000,000 |
In this example you’d receive $2,550,000 at closing and $450,000 over time. The bank is repaid first and holds security, and your VTB sits behind it. These numbers are only an illustration. Real proportions depend on the business’s cash flow, the lender’s criteria and the negotiation between you and the buyer.
On the bank side, lenders make their own credit decisions, and their terms shape how much room is left for a VTB. Kingston helps buyers prepare and coordinate acquisition financing, but it doesn’t lend money itself.
The terms that matter
What a VTB is worth to you depends on its terms. The main ones to negotiate:
- Amount: how much of the price you defer, which is how much you have at risk;
- Interest rate: your compensation for that risk and for waiting;
- Repayment schedule: whether payments start right away, after a delay or all at once at the end;
- Subordination: your agreement with the bank, which sets when you can be paid and what happens if the business struggles;
- Security and guarantees: what you can fall back on if payments stop;
- Default terms: what counts as a default, and what you can do about it.
What to watch for as the seller
Treat a VTB as a loan to someone whose ability to repay depends on running the business you’ve just sold them. Before you agree, it’s worth asking:
- Does the buyer have relevant experience and real money of their own in the deal?
- Can the business’s cash flow cover both the bank payments and your payments, with room for a weaker year?
- Under the subordination agreement, when can the bank stop your payments?
- Is a personal guarantee or other security available if payments stop?
- How much of your total price are you comfortable receiving later rather than at closing?
A vendor take-back is part of your price on paper. In practice, it’s only as safe as the buyer and the terms behind it.
How a VTB differs from an earnout
An earnout is paid only if the business hits targets after closing. A VTB is a fixed debt: the buyer owes it whether results go up or down. That generally makes a VTB more certain than an earnout, though still less certain than cash in hand. For more on weighing these pieces together, see our article on comparing offers.
Getting the structure right
A VTB touches your price, your risk, your taxes and the bank financing all at once. Negotiate it as part of the whole deal, not as an afterthought late in the process. Ask your lawyer to review the note, the security and the subordination agreement, and ask your accountant and tax advisor how the timing of payments affects you.
If a buyer raises seller financing early, you don’t have to answer on the spot. Ask how they plan to fund the rest, what their bank has indicated and what terms they have in mind. Their answers will tell you a lot about the buyer. Our FAQ has a short answer on seller financing if you want a quick reference to keep handy.
General information for business owners and buyers, not financial, legal, tax or accounting advice. Any examples are hypothetical.
