At closing, the seller receives only part of the purchase price and lends the rest to the buyer. As a supplement to bank financing, according to the specialist literature the loan normally amounts to around 10 to 20% of the purchase price, with a term of five to ten years. Banks usually require a subordination agreement so that they are repaid first.
For sellers of mid-sized companies, the vendor loan is often the key to closing the deal, especially in an MBO or MBI. It signals confidence in the company to the bank. At the same time, you bear a default risk: if the business performs poorly, your loan ranks behind the bank and is usually unsecured.
It can be protected through information rights, change of control clauses and, where the buyers are individuals, term life insurance. Its subordinated nature justifies a higher interest rate. For tax purposes, the loan is treated as part of the sale price, and the interest is taxed separately.
Example
Hypothetical example: Purchase price €5 million. The buyer contributes €1 million, the bank €3.25 million, and the seller defers €0.75 million (15%) at 6% interest. That results in €45,000 of interest per year; repayment follows once the bank loan has been repaid.
Sources
- Wann hilft ein Verkäuferdarlehen?, IWW Institut, PU Praxis Unternehmensnachfolge
- § 488 BGB Vertragstypische Pflichten beim Darlehensvertrag, Bundesministerium der Justiz