Skip to main content

Seller Financing (Seller Note / VTB)

A deal structure where the seller acts as lender, letting the buyer pay part of the price over time with interest instead of all cash at close.

What It Is​

Seller financing (also called a seller carry, seller's note, or vendor take-back) means the seller does not collect the full price at closing. Instead, the seller holds a note for a portion of it and the buyer repays that balance over time, with interest. As McDannell defines it in her glossary of deal terms, the seller "acts as lender, letting the buyer pay part of the price over time with interest (often 6-12%)." The carried amount is effectively a loan from seller to buyer, typically secured against the business and usually subordinated to (behind) any bank or SBA loan the buyer also uses.

This makes seller financing one building block of deal structure, alongside up-front cash, earnouts, and equity. It changes when the seller gets paid, not only how much.

Why Buyers and Sellers Use It​

A seller note bridges a gap. When a buyer cannot or will not put up all cash, carrying part of the price keeps the deal alive and can lift the headline number the buyer is willing to agree to. It also sends a signal: a seller willing to be paid over time is telling the buyer they believe the business will keep performing. As McDannell frames it, carrying part of the price "can bridge gaps and signal confidence."

For the buyer, a note reduces the cash needed at close and can sit alongside outside financing. In the small-business world McDannell writes about, SBA-backed loans and seller carry frequently appear in the same deal, with the carry covering part of the buyer's required contribution.

The Seller's Risk​

The trade-off is that the seller becomes a creditor and carries default risk. If the business stumbles under new ownership, the payments the seller is owed are exactly what is at risk, and a subordinated note sits behind the bank in line for repayment. McDannell is direct that the upside comes with exposure: a seller note can bridge gaps and signal confidence, "but the seller bears default risk."

Her practical guardrail is to limit how much price rides on the buyer's future behavior. She recommends carrying no more than a fifth of the deal:

"Seller carry / seller's note: Seller acts as lender, letting the buyer pay part of the price over time with interest (often 6-12%); author recommends carrying no more than 20%."

McDannell, Get Acquired, ch. 6

The same cap logic governs her view of earnouts, which similarly defer payment and tie it to performance the seller no longer fully controls.

Where It Fits in the Deal​

A seller's note is one form of what Warrillow calls "consideration," the price an acquirer pays. He distinguishes the guaranteed, up-front portion of a deal (the "downstroke") from money that is contingent or paid later:

"Downstroke: The minimum guaranteed money you make from a deal (the up-front portion, excluding contingent earnout)."

Warrillow, The Art of Selling Your Business, Appendix B

A carried note increases the gap between the headline price and the downstroke, so sellers should read offers by how much is guaranteed versus how much depends on later payment. Structure also drives taxes: as Warrillow notes, the choice between an asset sale and a stock sale changes after-tax proceeds, and how a note is structured interacts with that treatment.

Further Reading​

Sources: McDannell, Get Acquired ch.6; Warrillow, The Art of Selling Your Business ch.15 (Appendix B).