What is a vendor take-back?

A loan from the seller to the buyer for part of the purchase price, repaid with interest after closing. It closes the gap between the price and what the buyer’s lender will finance, and it usually ranks behind the bank.

How does the capital gains reserve work?

When part of the price is payable after the end of the year, the seller may defer the matching part of the gain to the years the money arrives. At least one fifth of the gain must be reported each year, cumulatively, so the whole gain is reported within five years.

When does the ten-year reserve apply?

On a transfer to the seller’s child of qualified small business corporation shares, or of family farm or fishing property. The minimum is then one tenth of the gain each year.

Can the exemption apply to a gain reported under the reserve?

Yes. A gain brought into income from a reserve keeps its eligibility for the lifetime capital gains exemption where the original gain was eligible. No reserve is available on a sale to a corporation the seller controls.

How is a vendor note secured?

Commonly by a general security agreement over the business’s assets and personal guarantees from the buyer, subordinated to the buyer’s senior lender under an agreement between the two lenders.

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CALCULATORS

Vendor take-back calculator

Payments on a vendor note, and the capital gains reserve year by year.

THE NOTE

Purchase price

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Vendor noteThe part of the price paid over time

Interest ratePer year

Term

years

AmortizationLonger than the term leaves a balloon at maturity

years

Payments

THE CAPITAL GAIN

Adjusted cost base and selling costsShares issued for a nominal amount have a cost base near zero

Reserve period

Ten years applies to qualified small business shares, a family farm or fishing property sold to a child

Payment each month

$1,600,000 paid at closing, $400,000 over 5 years

Price received
Gain reported

Interest over the term$75,229

Capital gain$1,999,900

Gain reported in the year of sale$1,669,156

YEAR	PRICE RECEIVED	INTEREST	GAIN REPORTED
1	$1,669,239	$25,807	$1,669,156
2	$74,244	$20,801	$74,241
3	$79,612	$15,434	$79,608
4	$85,367	$9,679	$85,362
5	$91,538	$3,508	$91,533

Year 1 is the tax year of the sale, with a full year of payments. Interest is taxed as income when received.

The size of a note depends on the price it finances.Get your free valuation

Method and assumptions

An estimate for planning. A sale is priced and taxed on its own facts, confirmed by the seller’s advisors.

GUIDES

Vendor financing

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01Payments follow a standard amortizing loan at the stated rate. Where the amortization is longer than the term, the balance at maturity is paid as a balloon.
02The capital gain equals the purchase price less the adjusted cost base and selling costs.
03The reserve at each year end is the lesser of the gain in proportion to the price not yet payable and a limit that requires at least one fifth of the gain to be reported each year, cumulatively. The limit is one tenth for qualifying transfers to a child.
04Year 1 is the tax year of the sale, with a full year of payments. Interest received is taxed as income in the year it is received.

Source: CRA, claiming a capital gains reserve

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Your financials

IndustryPrecision manufacturing

Revenue$7.2M

Adjusted earnings$1.45M

How buyers price it (three ways)

Revenue multiple0.6 – 0.9×

EBITDA multiple4.5 – 6.0×

Adjusted earnings multiple3.8 – 5.1×

$0.0M – $0.0M

$1.45M adjusted earnings at 3.8 – 5.1×, the multiple this profile earns

Two things would move it before you sell: your largest customer is 38% of revenue, and most of the business still runs through you

What comparable sales cleared at (28 in your sector and size)

Median 4.2×

You, 4.6×

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How InvestDeal compares with a traditional sale

TRADITIONAL PROCESS

InvestDeal

Buyer matches
TRADITIONAL
80% of businesses listed never sell
50+
Qualified buyer matches per business, on average
Time to interest
TRADITIONAL
9 to 12 months from listing to close
30 days
To initial buyer interest
Fees
TRADITIONAL
6%+ success fee, plus upfront fees or a retainer
Success fee only
$0 upfront, no retainer
Buyer reach
TRADITIONAL
Limited to one broker’s personal network
Platform-wide matching
Across active buyer demand
Valuation
TRADITIONAL
Asking price set by rule of thumb
AI valuation models
Trained for each industry, free for every owner

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WHAT YOU’LL GET

01. An initial value range

An estimate of what your business could sell for

02. Likely buyers

Which strategic and financial buyers may be interested

03. The sale process

Timing, next steps and what a sale involves

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