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Vendor loan note calculator: what the seller is actually paid, and when
Deferred consideration is the glue in most UK management buyouts. The calculator lays out the year-by-year schedule of a vendor loan note, the interest cost, and the difference between paying interest in cash and rolling it up while the senior lender is repaid first.
| Year | Opening | Interest | Capital | Cash paid | Closing |
|---|---|---|---|---|---|
| 1 | £1,250,000 | £75,000 | £0 | £75,000 | £1,250,000 |
| 2 | £1,250,000 | £75,000 | £0 | £75,000 | £1,250,000 |
| 3 | £1,250,000 | £75,000 | £416,667 | £491,667 | £833,333 |
| 4 | £833,333 | £50,000 | £416,667 | £466,667 | £416,667 |
| 5 | £416,667 | £25,000 | £416,667 | £441,667 | £0 |
Straight-line capital repayments after the interest-only period. Real vendor loan notes are subordinated to the senior lender under a deed of priority, and payments are usually blocked if senior covenants are breached. Illustrative only.
Senior lenders will set what the vendor can be paid and when. We negotiate both sides together.
Why the interest-only period matters
Senior lenders want their capital back first, and they will write that into the deed of priority. The practical consequence is that a vendor loan note almost always starts with an interest-only period, often the first two or three years, while the bank debt amortises, and only then begins to repay capital. Rolling the interest up during that period keeps more cash in the business for the senior lender's cover test, at the cost of a larger balance later. The vendor's patience is worth real money to the team, and the calculator shows how much.
Where the vendor loan sits in the structure
On a typical deal the vendor loan funds 15 to 35 percent of the price behind 2.0x to 3.0x EBITDA of senior debt, with the team's cash and any investor equity beneath it. Read how the layers fit together on vendor finance for a management buyout, build the whole stack in the funding structure calculator, and see the documents involved in the guide to the management buyout agreement.
Vendor loan note questions, answered
What is a vendor loan note?+
A loan from the seller to the buyer for part of the price, documented as a loan note issued by the acquiring company. The vendor is paid over time with interest instead of in full on completion. It is the most common way a UK management buyout closes the gap between what lenders will advance and what the owner wants.
What interest rate does a vendor loan carry?+
Commonly 5 to 8 percent as of September 2026, below mezzanine and often below senior debt, because the vendor is motivated to get the deal done and is usually taking the return partly as a higher headline price. Some carry no interest at all in exchange for a shorter deferral.
Is a vendor loan note secured?+
Usually by a second-ranking debenture behind the senior lender, with a deed of priority that subordinates it: no capital repayments, and sometimes no interest, until the senior lender is comfortable or repaid. Personal guarantees from the team are rarer on vendor loans than on bank debt.
What does rolled-up interest mean?+
Interest that is not paid in cash but added to the loan balance, sometimes called PIK for payment in kind. It protects the company's cash flow during the senior amortisation period but increases the amount ultimately repaid, which the calculator shows when you switch the deferral mode.
How is the vendor loan taxed?+
For the vendor, the consideration is usually taxed on completion even though it is paid later, though elections exist to defer gains on certain loan notes. For the company, the interest is generally deductible subject to the usual restrictions. We do not give tax advice; the vendor's and the team's accountants should confirm the treatment.