Vendor loan note
M&A / Merger ModelDeferred consideration where the seller effectively lends part of the price back to the buyer.
Also written: vendor note, seller note
Instead of receiving the full price in cash at completion, the seller takes a note repaid over time with interest. It is a loan from the seller to the buyer, secured on nothing in most cases.
It bridges two different gaps. A funding gap, where the buyer cannot raise the full price from lenders, and a valuation gap, where the seller believes in the business more than the buyer's banks do.
It is almost always unsecured and subordinated to the acquisition debt, so the seller ranks behind the banks and stays exposed to how the business performs after handing it over.
As a signal it cuts both ways. It can mean the seller has genuine confidence and is content to stay exposed, or that the buyer could not fund the deal on its own terms, and which reading applies depends on who asked for it.
Worked example
A buyer agrees 300 but can only raise 240 of debt and equity. The seller takes a 60 note at 8%, repayable over five years.
It is unsecured and subordinated to the acquisition debt, so the seller ranks behind the banks and remains exposed to the business it just sold.
Whether that signals seller confidence or buyer weakness depends entirely on who proposed it.