Seller Finance Explained in Plain English

September 03, 2024•2 min read

One-sentence takeaway: by letting the buyer pay part of the price over time you unlock more deals, earn interest, and often keep more after tax.

What seller finance really means

You agree to receive a slice of the price after completion instead of all upfront. The buyer signs a binding loan note or payment schedule and the business’s future cash flow covers the balance.

Three common structures

Vendor loan note

• Fixed repayments over 2–5 years
• Interest typically 6 %–8 % per year
• Secured on shares or key assets

Deferred consideration

• Set instalments every 6–18 months
• No interest if paid on time
• Simple option when buyer expects quick cash bumps

Earn-out

• Part of price tied to profit or revenue targets
• Paid as a percentage of uplift above an agreed base
• Works when seller stays on to drive growth

Why owners choose seller finance

• Raises the headline price when buyers lack full cash today
• Spreads income, often lowering capital gains tax in the first year
• Earns interest above bank rates if structured as a loan note
• Keeps buyers accountable because you are still owed money

Key protections to build in

• First-charge security over shares until final payment lands
• Default interest that rises if a payment is late
• Personal guarantees for deals under £2 m where buyer is a new vehicle
• Information rights—monthly management accounts until the note is cleared

Quick numbers check

Sale price: £2 m
Upfront cash: £1.2 m (60 %)
Vendor loan note: £800 k over 4 years at 7 % interest

• Annual repayment: £200 k plus interest
• Total received: £2.14 m
• Extra £140 k earned by acting as the lender

Common pitfalls and fixes

Pitfall: vague interest or repayment terms
Fix: list exact dates, rates, and amounts in the loan note

Pitfall: buyer uses surplus cash for expansion before paying you
Fix: add a cash-sweep clause that diverts excess cash to repayments first

Pitfall: earn-out metrics outside your control
Fix: link targets to revenue from existing products or customers you still oversee

Quick self-check for owners

Do you need every pound on day one, or can you wait for a higher total?
Are you willing to leave a modest security interest on the business?
Can the company’s cash flow comfortably cover the planned repayments?

Next step

Draft a one-page payment schedule with timeline, amounts, and security, then share it with your solicitor so it appears in the first heads of terms.

seller finance UK

Mark Guy Gerard Camilleri

I’m an SME investor with a background in social housing and over five years of experience working closely with government bodies to provide safe, high-quality housing for vulnerable communities. Through this work, I’ve developed a deep understanding of the essential services that support the housing sector — from pest control to electrical, plumbing, and HVAC services. My current focus is on acquiring and scaling established businesses in these core areas, especially those with strong local reputations and long-standing customer relationships. I’m not a corporate buyer looking to strip away what makes a business special. I take a human, collaborative approach to M&A — whether that means a full exit for the owner, a phased transition, or finding ways to work together post-sale to grow the business. If you’re a business owner thinking about the next chapter, I’d love to have a no-pressure conversation about what that could look like — and whether there’s a way we can align.