Seller Financing

Seller financing is an arrangement in which the seller of a business allows the buyer to pay part of the purchase price over time — after closing — rather than receiving the full amount at closing. The seller essentially acts as a lender to the buyer, typically documented through a promissory note bearing an agreed interest rate and repayment schedule.

Seller financing is common in Canadian small business transactions when the buyer cannot obtain full bank financing, or when both parties want to structure the transaction to reduce the buyer's upfront capital requirement. Seller financing also signals the seller's confidence in the business's continued performance, which can be reassuring to buyers.

Common structures include: a vendor take-back (VTB) note for 10–30% of the purchase price, payable over 3–5 years; installment sale structures tied to the business hitting performance milestones; and employment agreements that keep the seller involved while paying down the note from business cash flow. The risk for sellers is that recovery depends on the buyer's ongoing operation of the business.

See also: Vendor Take-Back, Promissory Note, Earn-Out, Closing.