Buying a Practice With a Financing Gap: A Vendor Take-Back Done Right

The situation

Meron worked full-time managing a retail store. Selam drove long-haul routes, often gone for a week or ten days at a stretch. Between them they had modest but steady combined income, some savings, and a plan: buy a small, established bookkeeping and tax preparation practice in Oakville and build something that belonged to them.

The practice was owned by Bohdan, an incorporated professional who had built the client base over many years and was ready to retire. He was selling the business assets — the client files, the software licences, the office lease, the equipment, and the goodwill that came with a loyal roster of small-business clients — for roughly $210,000. It was not a large business, but for two buyers with no prior ownership experience, it was a serious commitment.

Meron and Selam came to Treadstone Law after they had already made an offer and had it accepted in principle. What they needed was help turning a handshake understanding into a purchase agreement that actually protected them, and a financing structure that could get them to closing.

The financing gap

The couple approached their bank for a small business loan and were approved for roughly $140,000 — well short of the $210,000 price. The shortfall was not a reflection on Meron and Selam personally. It was about what the bank was buying as security. Most of the practice's value sat in goodwill and a client list, not in equipment or real estate the bank could easily seize and resell if the loan went bad. Lenders are cautious about advancing heavily against that kind of asset, especially for first-time owners with modest, partly irregular income.

With about $20,000 in savings available as a down payment, that left a gap of roughly $50,000 between what the bank would lend and what Bohdan wanted for the business. Bohdan, for his part, was willing to bridge that gap himself through a vendor take-back — commonly called a VTB. In a VTB, the seller effectively becomes a lender: instead of receiving the full price at closing, the seller accepts a promissory note for part of the price and collects it over time, with interest, after the sale closes.

A VTB can make a deal work that otherwise would not close. It can also go badly wrong for both sides if it is handled informally — a verbal understanding, a simple IOU, or a note with no real security behind it. Our task was to make sure this one was not that kind of arrangement.

What we did

1. Reviewed the practice's financials before committing to the price. Before finalizing terms, we advised Meron and Selam to have an accountant confirm recent revenue trends and client retention, so the purchase price and the repayment schedule they were about to sign onto were based on real numbers, not Bohdan's optimistic projection.
2. Negotiated the purchase price down modestly. The financial review showed one large client accounted for an outsized share of recent revenue, with no long-term contract in place. We used that risk to negotiate a reduction from Bohdan's original asking price before settling on the roughly $210,000 figure.
3. Structured the vendor take-back as a proper secured loan, not an informal note. The $50,000 gap was documented as a promissory note payable to Bohdan over five years, with interest. It was backed by a general security agreement over the purchased business assets, registered under the Personal Property Security Act, giving Bohdan an enforceable interest if the loan went unpaid — but also giving Meron and Selam a clearly defined process rather than exposure to an unpredictable demand for repayment.
4. Negotiated priority between the bank and the seller. The bank, as the larger lender, required its own security over the same assets and would only close if its claim ranked ahead of Bohdan's. We negotiated a priority agreement between the bank's lawyer and Bohdan's lawyer that set out clearly who would be paid first if the business ever failed, so both lenders — and our clients — knew exactly where they stood.
5. Built in a genuine cure period before any default remedy. Rather than accepting Bohdan's initial draft, which allowed him to demand the full balance after a single missed payment, we negotiated a notice-and-cure provision: a defined number of days to catch up on a missed payment before Bohdan could accelerate the loan or move to enforce his security. That clause mattered more than either side expected.
6. Matched the repayment schedule to realistic cash flow. We pushed back on Bohdan's preferred repayment term, which assumed the practice's revenue would hold steady from day one. The final schedule set payments the business could plausibly carry through a slower first year, rather than the strongest year Bohdan had ever had.

The outcome

The purchase closed. Meron and Selam took over the practice, kept most of Bohdan's client relationships, and spent the first year finding their footing as new owners — Meron handling day-to-day client work between shifts at the retail job she kept part-time for stability, Selam contributing between long-haul trips.

About fourteen months in, two things happened close together. The large client whose revenue share had worried us during due diligence left for a competitor, and Selam's available trucking work slowed for several months. The couple kept up their bank loan payments, reasoning correctly that losing the bank's security would put the whole business at risk, but they fell behind on the vendor take-back payments to Bohdan. Arrears built up to roughly $9,500 over a few months of missed and partial payments.

Bohdan issued formal notice of default, as the loan documents allowed. This is the moment a poorly drafted VTB usually turns into a disaster for everyone: the seller moves to seize assets under the general security agreement, the practice's operations are disrupted or shut down entirely, the bank's own security is put at risk by the disruption, and the buyers lose the business along with everything they put into it — often while still owing money.

That is not what happened here. Because the loan documents included a real cure period and a clearly defined default process, there was room to negotiate rather than a cliff edge forcing immediate enforcement. We opened discussions with Bohdan's side on Meron and Selam's behalf. The result was a compromise, not a rescue: the couple arranged a short-term family loan to pay the roughly $9,500 in arrears immediately, and the remaining balance of about $40,500 was restructured over an additional two years at a slightly higher interest rate, with smaller monthly payments the practice could sustain. In exchange for the concession on timeline, Bohdan asked for reaffirmed personal guarantees from both Meron and Selam and additional security over the equity in the truck Selam owned outright, covering the deficiency if the business failed outright.

Nobody walked away from this fully satisfied. Bohdan gave up the shorter repayment timeline he was originally promised and accepted a smaller return along the way in exchange for more certainty. Meron and Selam kept the business they had built their plans around, but on tighter terms and with less room for error going forward. It was a compromise both sides could live with, and it kept a working business running instead of forcing a seizure that would likely have left everyone worse off — including Bohdan, whose best chance of recovering his money was a practice that stayed open, not one that got shut down mid-dispute.

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