What Are Deferred Consideration and Loan Notes, and Should You Accept Them in a Business Sale?

Not all business sales result in the full purchase price being paid upfront. In many UK business sales, part of the consideration is deferred, sometimes in the form of loan notes.

For founders, this raises an important question:Are you comfortable getting paid later, and are the risks worth it?

This guide explains deferred consideration, loan notes, and how to think critically about delayed payments when selling your business.

What Is Deferred Consideration in a Business Sale?

Deferred consideration means a portion of the sale price is paid at a later date, usually 6 to 36 months post-completion. Unlike an earn-out (which is conditional on performance), deferred consideration is typically time-based and may or may not carry interest.

Buyers offer deferred payments to:

• Ease cash flow at completion

• Align payments with post-deal business performance

• Retain leverage over the seller (especially if they stay involved)

For sellers, it means not all cash is in the bank on day one, which can have serious implications for risk and financial planning.

What Are Loan Notes?

Loan notes are a common form of deferred consideration. Instead of paying you later in cash, the buyer issues a formal IOU, often structured like a bond, promising to pay the deferred amount (with or without interest) at a future date.

Key features include:

• Fixed repayment schedule (e.g. in 12 or 24 months)

• Interest (or sometimes rolled-up interest)

• Sometimes secured, sometimes unsecured

• Often transferable, but rarely liquid

Loan notes can offer a tidy return if the buyer is reliable, but if they default, you’re left chasing repayment with limited recourse.

Deferred Consideration vs Earn-Out

Feature	Deferred Consideration	Earn-Out
Timing	Fixed schedule	Based on performance milestones
Risk Profile	Buyer solvency	Company performance post-sale
Legal Structure	Promissory or loan note	Usually linked to SPA terms
Seller Involvement	Often not required	Often required to hit targets

Understanding this distinction is key - some deals include both, but they carry different risks.

Should You Accept Deferred Consideration?

Only if the reward outweighs the risk. Ask yourself:

• Is the buyer financially stable?

• Is the repayment obligation clearly defined in the SPA?

• Is there any security or personal guarantee?

• Will you be around to enforce repayment if needed?

If the answers raise doubt, consider negotiating for a higher upfront payment or better terms.

Negotiating Safer Terms

If deferred consideration is on the table:

• Ask for security: a charge over assets, an escrow, or a personal guarantee

• Push for interest: 6–10% is typical in UK private deals

• Get clarity: on timing, default clauses, and repayment structure

• Consider a discount: to compensate for risk

Deferred consideration is negotiable. Unlike earn-outs, which depend on performance targets, deferred payments can often be reshaped to reduce risk. Don’t just accept what’s offered.

Final Thought

Deferred consideration and loan notes are common in UK business sales, but that doesn’t mean they’re always fair or safe. If structured poorly, they can leave founders exposed, especially if the buyer’s situation changes post-deal.

At Deal Clarity, we help business owners review offer letters, Heads of Terms, and completion terms so they understand what’s really on offer, and how much of it is guaranteed.