A vendor take-back note from the seller is a financing arrangement, not cash the investor has already committed, so it needs its own explanation distinct from funds the investor is contributing directly. Identify the note's terms, including repayment obligations and any security interest the seller retains in the business.
Separate seller financing from the investor's own committed capital
Document the note's principal, interest, repayment schedule and any security the seller holds over the business or its assets, and explain how that arrangement affects the investor's actual ownership and control. Confirm with counsel how this form of financing is treated in the substantiality and at-risk analysis compared with a conventional third-party loan.
Break the transaction into cash paid, seller credit, assumed liabilities, working capital, professional expenses, and any amount still refundable. Review what secures each loan and who bears loss if the business fails. E-2 substantiality uses proportionality rather than a fixed minimum; counted capital requires irrevocable commitment and exposure to loss. The enterprise cannot be marginal: it must have present or future capacity to provide more than a minimal living or make a significant economic contribution, and projected future capacity should generally be realizable within five years after normal business activity begins. A common error is counting the entire vendor note as the investor’s exposed capital without analyzing its security and commitment terms.
Hypothetical example: a Canadian-citizen veterinarian from Clarence-Rockland negotiates to purchase an American animal clinic using savings, a personally secured loan, and seller financing tied to clinic assets. The budget traces each funded payment and labels the unpaid note separately. Five-year projections use supported staffing and revenue assumptions to address nonmarginality, but do not convert projections into money already invested. Counsel compares the qualifying amount with the clinic’s actual acquisition and launch costs, while the buyer preserves reserves that are not misleadingly presented as committed capital.