Seller financing is used in many European ETA and search-fund transactions, especially in owner-managed SME succession situations. Europe doesnʼt have a single SBA-style equivalent to the US, but acquisitions frequently blend senior bank debt with seller participation, particularly when the buyer is a first-time operator, and the bank plus investors want added alignment.

Seller notes are often discussed in the ~10–30% of purchase price range in practitioner guidance, and can move higher when thereʼs customer concentration, owner dependence, weaker reporting, or limited second-layer management. Deals often derail when sellers (or their lawyers) treat the vendor loan like a standalone commercial loan, demanding protections that donʼt fit what the instrument is designed to do in an M&A context.

1. Seller Financing Is Deferred Consideration, Not a Cash Loan

A seller note usually does not involve the seller wiring money to the buyer.

Instead, the seller agrees to receive part of the purchase price in the future, a classic deferred consideration.

Sellers accept this because it can improve bankability, shows they are willing to participate in the downside, support the headline price, reduces the equity need, and smooth transition risk.

2. Why Vendor Loans Look Unbankable by Design

Vendor loans often contain terms a bank wouldnʼt accept, but are normal in acquisition structures.

Common features include:

Vendor loans and earn-outs are not the same thing. Earn-outs are a form of contingent consideration tied to future performance, whereas Vendor loans are fixed and simply paid later (if the company has the cash / refinancing capacity).

3. Vendor Loans Absorb Intangible Risk

Example structure (illustrative):

If structured correctly and by adding a forgiveness clause, a seller note can mitigate risks like customer concentration. Assuming a major customer leaves shortly after closing, contrary to what diligence and seller representations implied, the acquired earnings base drops. In that scenario, the seller note would be forgiven, and the overall multiple would remain within the agreed range. 

4. Why Seller Notes Can Signal Confidence to Lenders and Investors

Seller financing is frequently viewed as an alignment mechanism. The seller remains economically tied to future outcomes rather than exiting entirely at close. If the seller pushes late-stage terms that effectively try to graduate the note into senior-like protection (hard security packages, aggressive amortization, enforcement rights that conflict with the bankʼs priority), it can raise questions in underwriting, especially where subordination and payment priority are central to the senior facility. The practical result is often delay, re-papering, or increased closing risk.

5. The Bottom Line

In European ETA, seller financing is best understood as a deferred purchase price with junior-risk characteristics, even if documented as a debt instrument. Treat it like a commercial loan, and you often increase lender friction and closing risk.

Structure it as aligned, subordinated, and fit-for-purpose, and you materially improve the odds of a clean close and a durable transition.

Legacy Partners has worked across the ETA ecosystem for years, advising searchers, operators, and investors through acquisition, diligence, and operating transitions. Feel free to reach out by replying to this email! We’re always happy to help.

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