GLOSSARY
Vendor Take-Back (VTB)
A portion of the sale price the buyer pays to the seller over a defined period after closing, rather than in full on the day of the transaction. The seller temporarily acts as a lender.
Definition
A vendor take-back — often abbreviated VTB — is a financing mechanism where the seller agrees to receive a portion of the sale price in instalments after closing.
In French-language Quebec documentation, you’ll see balance de prix de vente used for the same concept.
In concrete terms, if a business sells for $3 million with a 20% VTB, the seller receives $2.4 million at closing and $600,000 over an agreed period (typically 2 to 5 years), with interest.
Why VTBs are common in SME sales
A VTB plays several roles in a transaction:
- It makes financing easier. Banks rarely finance 100% of an acquisition. The VTB bridges the gap between bank financing and the full price.
- It signals the seller’s confidence. A seller who accepts a VTB sends a strong message: “I believe in this business enough to leave some of my money on the table.”
- It can accelerate the transaction. A buyer who has 80% of the financing but not the last 20% can still close thanks to the VTB.
Typical structure
- Proportion: 10% to 30% of the sale price
- Duration: 2 to 5 years
- Interest rate: generally above the bank rate (the seller is taking on risk)
- Collateral: often subordinated to bank debt, sometimes secured against the business’s assets
What every seller should know
- The VTB is a negotiation tool — it can justify a higher total price since it reduces the buyer’s risk
- The real risk: if the business performs poorly after the sale, VTB repayment can be compromised
- Have your lawyer structure the VTB — default, subordination, and security clauses make all the difference
- The tax impact of a VTB differs from a full payment — consult your tax advisor