Vendor take-back (VTB)
A vendor take-back, or VTB, is financing provided by the seller: instead of receiving the full price at closing, the seller is paid a portion over time under a promissory note. It is one of the most common ways a Canadian small business deal bridges the gap between what a buyer has and what a bank will lend.
Most real acquisitions are funded from more than one source. A typical structure combines a buyer’s down payment, a bank or CSBFP-backed loan against the assets, and a VTB covering the remainder — often the part of the price attributable to goodwill, which lenders finance least willingly.
What a VTB signals
A seller willing to carry part of the price is telling a buyer they expect the business to keep performing, because their own remaining proceeds depend on it. Buyers read that as confidence, and lenders often view a VTB favourably for the same reason. A seller refusing any VTB on an otherwise healthy business invites the opposite question.
How sellers protect themselves
- A written promissory note with a clear rate, term and payment schedule
- Security registered against the business assets, and often a personal guarantee from the buyer
- Acceleration rights if payments are missed or covenants breached
- A clear intercreditor position, since the primary lender will usually require the VTB to sit behind them
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Innovation, Science and Economic Development CanadaGovernmentCanada Small Business Financing Program
- 02Business Development Bank of CanadaIndustryHow to sell your business
- 03Treadstone LawLegal commentaryHow Sellers Secure a Vendor Take-Back Loan in an Ontario Business Sale
- 04Treadstone LawLegal commentaryHow Financing Differs Between a Share Purchase and an Asset Purchase in Ontario
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