Seller financing is a still little-known financing tool, even though it plays a central role in many SME transfers and in some property sales in Switzerland. It makes it possible to close a deal that bank financing alone could not, while sending a strong signal of trust between the parties. But you need to understand how it works, and above all its tax consequences, which can hold unpleasant surprises.
What is seller financing?
Seller financing (also called a vendor loan) is a loan the seller grants to the buyer to finance part of the purchase price. In practice, the buyer does not pay the full price in cash: a portion remains owed to the seller and is repaid in instalments over a set period, in principle with interest. For part of the price, the seller therefore plays the role a bank would have played. It is most often seen in two situations: the transfer of a business (SME buyout, succession, family transfer) and, more rarely, the sale of a property between private individuals.
When is it used?
In a business transfer, seller financing complements the other sources of funding. A typical structure combines around 30 percent equity from the buyer, 60 to 70 percent bank financing, and the balance as a vendor loan. The latter usually represents 10 to 30 percent of the price, repayable over 1 to 5 years, and is almost always subordinated (repaid after the bank in the event of difficulty).
It is particularly useful when the buyer does not have all the funds, when the value of the business depends on its future performance, or when the seller wants to make it easier for an employee, a relative or a trusted third party to take over. In real estate the mechanism is identical: the seller accepts deferred payment of part of the price, which remains rare in Switzerland but can unlock a family or private sale.
How to set it up
Seller financing is based on a written loan agreement, separate from the sale contract, setting out at least: the amount, the term, the interest rate, the repayment schedule (regular instalments or bullet), the ranking (subordinated or not), the securities and the consequences of default.
Securities are essential for the seller: a pledge over the shares or units sold (a direct security over what was just sold), a third-party guarantee, a pledge over other assets, or a mortgage certificate for a property sale. When the buyer also borrows from a bank, the bank generally requires a subordination agreement placing the vendor loan behind the bank debt.
Tax implications in Switzerland
This is the most important point, and the one where a professional's support really matters.
A defensible interest rate. Interest must reflect market conditions. The Federal Tax Administration (FTA) publishes safe-harbour rates each year, useful above all in family transfers or between related parties. For 2026, on Swiss-franc loans granted by related parties, the FTA accepts up to 3.5 percent on the portion up to one million and 1.5 percent above that; the minimum rate when a company lends to its shareholders is 0.75 percent. A rate outside these limits may be re-characterised. Between fully independent parties, the rate is negotiated but must remain justifiable.
For the seller. Interest received is income from movable assets, taxable as income. As long as the loan is not repaid, the receivable is part of the seller's taxable wealth (wealth tax).
The main trap: indirect partial liquidation. When a seller sells the shares of a company held in their private assets, the gain is in principle a tax-free private capital gain, one of the major advantages of the Swiss system. But this privilege is fragile: indirect partial liquidation (IPL) allows the tax authorities to re-characterise part of the gain as taxable dividend. It requires five cumulative conditions: a stake of at least 20 percent, the transfer of the shares from the seller's private assets to the buyer's business assets, the existence at the time of sale of non-operating, distributable substance, a distribution of that substance within five years, and the fact that the seller knew or should have known. The link with seller financing is direct: if the buyer repays the loan by drawing on the acquired company's surplus cash or reserves, the tax-free gain may be re-characterised as taxable income. How the repayment is financed is therefore decisive.
For the buyer. If the buyer is a company or a business, the interest is a deductible expense. If the buyer is a private individual, private debt interest is deductible up to the amount of investment income plus 50,000 francs.
Real estate. The seller remains liable for the real estate capital gains tax at the time of the transfer of ownership, even if part of the price is paid later: a cash-flow gap to anticipate. Interest remains deductible for the buyer.
The advantages
For the buyer: less equity and bank debt required, easier access to financing, and often the ability to close a deal that could not have happened otherwise. It is also a sign of trust, the seller believing in what they sell. For the seller: a wider pool of buyers, often a better price, interest earned, staggered proceeds and a smoother transfer.
The drawbacks and risks
The main risk falls on the seller: the buyer's default. If the loan is subordinated to the bank, the seller ranks behind it and may recover nothing, hence the importance of securities. Add to this the administrative complexity (monitoring, reminders, litigation) and the tax risks specific to Swiss law. For the buyer, repayment weighs on cash flow right after the takeover, often a delicate period.
Points to watch
Always have a written, separate loan agreement drawn up, set a defensible rate, provide suitable securities, and above all analyse the tax consequences in advance, in particular the risk of indirect partial liquidation in a share deal. The way the repayment is financed can make all the difference between a tax-free gain and heavily taxed income.
In summary
Seller financing is a powerful lever to succeed in a transfer or unlock a sale, provided it is well structured. Its strengths (flexibility, trust, access to financing) are real, but its tax traps, specific to Swiss law, call for careful preparation. At neofidu.ch, we support sellers and buyers with the structuring, the drafting of the agreement and the tax optimisation of the transaction.
This article is for information only and does not replace personalised advice. Tax rules vary by canton and by your situation. Contact NeoFidu for an analysis tailored to your project.