A vendor take-back is a seller-financed loan where the selling owner lends a portion of the purchase price back to the buyer, accepting deferred payment in exchange for completing a transaction that might not otherwise be fully financeable.

A VTB bridges the gap between what a lender will advance and what the transaction requires. If a buyer can raise $4 million in bank debt and has $1 million of equity but the business is worth $6 million, a $1 million VTB from the seller closes the gap. The seller receives that $1 million, plus interest, over a defined repayment period, typically two to five years, secured by a subordinated charge on the business’s assets.

For sellers, a VTB creates a post-closing financial relationship with the buyer and a dependence on the business continuing to perform well enough to service the debt. If the buyer’s management of the business deteriorates post-closing, the VTB repayment is at risk. A seller who accepts a VTB without fully assessing the buyer’s capability and the security available for the loan has effectively remained partially invested in the business’s performance without retaining any operational control over it.

A vendor take-back changes the risk profile of an exit. Understanding what is being agreed to matters before accepting the structure. See how Wefinx approaches exit planning.

← Back to glossary