Vendor Loan: Securing Deferred Payment in a Business Sale

Quick answer. A vendor loan lets the seller finance part of the price — often 20 to 40% — which the buyer pays in instalments. It unlocks sales where the buyer lacks cash, but exposes the seller to default risk. Three levers secure it: solid collateral (share pledge, bank guarantee, acceleration clause), an interest clause, and anticipating tax — the capital gain being taxed in the year of the sale, with an option to spread the tax payment under Article 1681 F of the French Tax Code.

A vendor loan is credit extended by the seller to the buyer: part of the price is paid in cash at signing, the balance settled over an agreed period, usually two to five years, with interest. The seller thus becomes a creditor of the buyer for the deferred portion.

In practice, a business valued at 1,000,000 euros may be paid 700,000 euros in cash, with the remaining 300,000 euros financed by the seller over four years at an agreed rate. The mechanism is set out in the final sale deed or in a standalone vendor loan agreement, and is prepared as early as the letter of intent.

Without collateral, a vendor loan is merely an unsecured receivable, exposed to the buyer's insolvency. Three mechanisms structure serious deals.

1. Pledge of the sold shares. The buyer pledges the acquired shares as security (a pledge of a securities account or of company shares, governed by Articles 2355 et seq. of the Civil Code). On default, the seller can have the shares realised and repaid from the proceeds.
2. Bank guarantee or surety. A bank undertakes to pay the seller on schedule if the buyer fails. The guarantee is strong but carries a fee, and the bank usually requires additional security.
3. Acceleration clause. The contract provides that the balance becomes immediately due on a payment default, a change of control of the buyer, or a clear financial deterioration. It is the simplest and most effective protection against inertia.

The representations and warranties guarantee (GAP), often negotiated in parallel, protects the buyer against undisclosed liabilities; it is distinct from the vendor loan but can interact with it, for instance by offsetting a warranty indemnity against the outstanding balance.

A vendor loan does not change the tax trigger: the capital gain is taxed in full in the year of the sale, even if the seller receives only part of the price in cash. For a sale of shares in 2026, the applicable rate is the flat tax of 31.4% (12.8% income tax and 18.6% social levies, up from 17.2% before 2026), unless a global option for the progressive scale is chosen. Interest earned on the balance is taxed as investment income at the same flat tax.

2026 watch point. Since the 2026 Social Security Financing Act, social levies on securities capital gains rose from 17.2% to 18.6%, taking the flat tax to 31.4%. The seller must therefore have the cash to pay tax from the sale, while having received only part of the price.

Spreading the tax payment (Article 1681 F of the Tax Code)#

To ease this mismatch, Article 1681 F of the French Tax Code allows, on request, the tax on the capital gain to be paid in instalments where the price itself is deferred through a vendor loan. The scheme, open to sales completed since 1 January 2019, is subject to cumulative conditions:

• the business sold meets the European definition of a small enterprise (fewer than 50 employees and turnover or balance sheet total not exceeding 10 million euros);
• the sale concerns a sole proprietorship or a majority of a company's share capital;
• after the sale, the company is no longer controlled by the seller;
• the tax does not result from a correction procedure, the seller is up to date with tax obligations and provides the guarantees requested by the public accountant.

Payment can then be spread until 31 December of the fifth year after the sale, without exceeding the period set for the instalment payment of the price. The deferral is not automatic: it must be requested by the payment deadline on the tax notice and requires guarantees.

Worked example: tax and cash flow#

Take a sale of shares at 1,000,000 euros generating a capital gain of 700,000 euros, paid 700,000 euros in cash and 300,000 euros through a four-year vendor loan. The capital gains tax, at the 31.4% flat rate, comes to about 219,800 euros, due in the year of the sale. As the seller received 700,000 euros at closing, they have the cash to pay, but their future 300,000-euro income remains exposed to the buyer's risk.

If the price structure were reversed — say 300,000 euros in cash and 700,000 euros deferred — the 219,800-euro tax would exceed the initial proceeds: this is exactly where the Article 1681 F deferral becomes decisive, smoothing the payment over the life of the loan. The example illustrates a simple rule: the tax on a sale is driven by the collection schedule, not only by the size of the gain. This is why we always model the tax-and-cash pairing before settling the cash portion and the deferred portion.

Sole proprietorship and goodwill. Vendor loans are common; the seller's lien and the pledge of goodwill offer specific collateral, and the Article 1681 F deferral applies under the same conditions.

Regulated liberal professions. The portion financed by vendor loan is often framed by the rules of the relevant professional body, which ensure the buyer's own capacity.

Sale combined with bank financing. The vendor loan's ranking (subordinated or not to the bank loan) must be clearly defined, as it determines the collateral the bank will agree to share.

• Document the loan in a dedicated contract, with a schedule, rate, collateral and an acceleration clause, rather than a mere addendum to the sale deed.
• Register security before signing: an unregistered pledge offers no protection if the buyer enters insolvency proceedings.
• Provision for tax from the sale or request the Article 1681 F deferral: capital gains tax falls due before the full price is collected.
• Monitor the buyer's financial health: provide for an annual right to review the accounts so acceleration can be triggered in time.

Recently, we structured a vendor loan for a buyer who had only 40% of the price from equity and bank credit. Without it, the sale would not have happened. A pledge of the shares and an acceleration clause secured the seller's income over four years. The point that nearly derailed the deal was not legal but fiscal: the seller had not anticipated that capital gains tax would fall due in the year of the sale, while only the first third of the price had been received. We then used the Article 1681 F deferral to smooth the payment.

The lesson is clear: a vendor loan is secured as much by law as by cash. The tax structuring of the sale must be designed before signing, not discovered afterwards.

Hayot Expertise advice. A vendor loan turns a difficult sale into a workable deal, on three conditions: document the loan and its collateral rigorously, anticipate capital gains tax from the moment you negotiate price, and monitor the buyer's solvency. We coordinate the accountant, the lawyer and the seller to build a sustainable structure.