Guides for owners · 7 min read

Vendor take-back financing explained

By Colton Doan, founder of Sellvara · Updated October 30, 2026

In many Canadian small business sales, the buyer doesn't pay the whole price on closing day. Instead, the seller agrees to receive part of it later, in instalments, with interest. This is called a vendor take-back (VTB), also known as vendor financing or seller financing. It's one of the most common tools for getting a deal done, and it's worth understanding before you start talking to buyers.

How a vendor take-back works

You agree to lend the buyer part of the purchase price. On closing, they pay you the rest, usually from their own money and a bank loan. Then they repay your loan over an agreed period, typically from the business's profits.

Example: a business sells for $800,000. The buyer pays $200,000 of their own money, borrows $440,000 from a bank, and you take back the remaining $160,000 (20% of the price). They repay your $160,000 plus interest over four years.

How much of the price is financed this way varies from deal to deal. It's often a minority of the price, commonly in the range of 10% to 30%, but it can be more or less depending on the business and the buyer.

Why buyers ask for one

• It fills the financing gap. Banks rarely lend the full price, and many buyers don't have enough savings to cover the rest.
• It shows you believe in the business. If you're willing to be paid from future profits, the buyer and their lender take that as a sign the profits are real.
• Lenders often expect it. A VTB can make a bank more willing to lend, because it adds money to the deal that the seller, not the bank, is at risk on.

Why sellers agree to one

• More buyers can afford your business, which can mean a faster sale and a better price.
• You earn interest on the amount you finance.
• It may spread your tax. In some cases, a capital gain on money you'll receive over several years can be reported over those years rather than all at once. This depends on the deal, so ask your accountant.

The risks

The main risk is simple: if the business struggles under the new owner, you may not be paid in full. And because the bank usually requires its loan to be repaid first, your loan ranks behind theirs if things go wrong. This is called subordination, and almost every bank will ask for it.

That's why a VTB needs to be negotiated and documented properly, not agreed on a handshake.

Terms to negotiate

• Amount: how much of the price you're willing to finance.
• Interest rate: often somewhat higher than a bank's rate, to reflect the extra risk you're taking.
• Term: commonly a few years.
• Payments: monthly or quarterly, and whether there's an initial period with interest only.
• Security: a general security agreement over the business's assets (registered so other creditors can see it), a pledge of the shares, and sometimes a personal guarantee from the buyer.
• Default: what happens if payments are missed, and your rights to step in.
• Covenants: promises from the buyer, such as not selling key assets or taking large amounts out of the business while your loan is unpaid.
• Subordination: the terms of any agreement with the bank, including whether you can still be paid while the bank loan is outstanding.

Your lawyer should prepare or review all of these documents. They're as important as the purchase agreement itself.

VTBs vs earn-outs

A VTB is a loan: the amount owed is fixed, and the buyer owes it regardless of how the business performs (although they may not be able to pay if it does poorly). An earn-out is different: part of the price is only paid if the business hits agreed targets after the sale, such as revenue or profit. Earn-outs are useful when buyer and seller disagree on what the business is worth, but they carry more risk for the seller and are harder to measure. Some deals use both.

Protecting yourself

• Check the buyer carefully. Their experience, finances and plans matter more when you'll be relying on them to pay you.
• Make sure they're putting in their own money. A buyer with a meaningful personal investment is more committed.
• Stay informed. Ask for regular financial statements while your loan is outstanding.
• Plan your retirement without it. Ideally, treat the VTB as a bonus rather than money you depend on. See planning your retirement around the sale.

Common questions

What is a vendor take-back?

Financing where the seller lets the buyer pay part of the purchase price over time, with interest, usually from the business's profits.

How much of the price is usually vendor financed?

It varies, but it's often a minority of the price, commonly in the range of 10% to 30%.

Is vendor financing risky for the seller?

Yes: if the business struggles, the seller may not be paid in full, and the bank is usually repaid first. Good security, covenants and careful buyer screening reduce the risk.

Next steps

A VTB is usually agreed in the letter of intent, so think about how much you'd be willing to finance before offers arrive. For the full process, read how to sell a small business in Canada. If you're thinking of selling to a manager or family member, VTBs are especially common: see selling to an employee or family member.

This guide is general information, not legal, tax or financial advice. Every sale is different: talk to your own accountant and lawyer before you decide.