What is a vendor take-back loan or seller financing when buying a business in BC?

This answer covers the law of British Columbia.

A vendor take-back, also called seller financing, is an arrangement where the seller agrees to be paid part of the price over time instead of all at closing. The buyer pays the rest upfront, so the seller is in effect lending the buyer the balance. The interest, payment schedule and security the seller takes are set by the written agreement and are negotiated between the parties.

For the seller, being paid over time can spread the tax. A capital gains reserve lets a seller who is paid over time spread the gain, and most reserves can be claimed over a maximum of four years, so the gain is included over five years. A nine-year period applies in some cases, such as certain transfers to children and some qualifying business transfers. Not every dollar is a capital gain, though, because recapture of capital cost allowance must be included in income when the undepreciated capital cost balance is negative.

What security the seller can take, and what happens if payments stop, depends on the agreement and the structure of the sale. Both sides should have a lawyer review the terms and an accountant review the tax before signing.