What is a 70/20/10 deal structure?
A 70/20/10 deal structure uses all three funding parts of a no-money-down acquisition:
- 70% commercial debt (senior debt): a lender funds most of the price at settlement, secured on the business.
- 20% seller finance (vendor finance): the seller defers part of the price and is repaid over a few years from the business’s cash flow. See seller finance explained.
- 10% seller rollover: the seller keeps a 10% stake instead of taking that part of the price in cash. See seller rollover explained.
The buyer contributes no cash.
How does a 70/20/10 deal work?
Illustrative example
Illustrative only. Real terms depend on the business, the lender and the seller.
A business is bought for $1.5M.
| Funding part | Share | Amount | How the seller is paid |
|---|---|---|---|
| Commercial debt | 70% | $1.05M | Cash at settlement |
| Seller finance | 20% | $300k | Instalments over a few years from cash flow |
| Seller rollover | 10% | $150k | A 10% stake: dividends and future sale value |
| Buyer’s cash | 0% | $0 | — |
Why it is often over-financed
The lender often adds a working-capital line on top of the term loan. Working capital is the cash a business needs to pay wages, rent and suppliers before customers pay. With that line in place, total funding exceeds the purchase price. That is what "over-financed" means. See over-financed acquisitions.
Testing the repayments
This structure has two sets of fixed repayments: the bank loan and the seller note. Both must fit inside the business’s cash profit with a buffer.
Illustrative: if the bank loan costs about $230k a year and the $300k seller note is repaid over three years (about $100k a year plus any interest), total annual repayments are about $330k. To reach a DSCR of 1.5x (cash profit divided by annual repayments), the business needs about $495k of reliable cash profit. If it makes less, lengthen the seller note, add a grace period, or lower the price.
Why do retiring owners like 70/20/10?
In our experience, this is the structure retiring owners say yes to most readily, because it answers the three things they worry about:
- "Will I get my money?" 70% arrives at settlement.
- "What will I live on?" The seller note pays a steady income for the next few years.
- "Am I leaving money on the table?" The 10% stake shares in whatever the business becomes.
A 10% stake also keeps the seller interested in a smooth handover without making them a large partner who expects a say in every decision.
How does 70/20/10 compare with 60/40?
| 60/40 | 70/20/10 | |
|---|---|---|
| Commercial debt | 60% | 70% |
| Seller finance | 0% | 20% |
| Seller rollover | 40% | 10% |
| Cash to seller at settlement | Lower | Higher |
| Seller’s ongoing stake | Large | Small |
| Buyer’s fixed repayments | Lower | Higher |
| Best for | Mid-career sellers wanting a partner | Retiring sellers wanting income and a clean-ish exit |
See the 60/40 deal structure for the other side.
Where does the seller note rank?
The lender is repaid first. That is what "senior" means. The seller note usually sits behind it, which lenders call subordinated. The lender will want a written agreement with the seller, often called a deed of priority or subordination agreement, that sets out:
- the order in which the bank and the seller are paid;
- whether seller repayments can continue if the business misses a bank covenant (a financial test written into the loan);
- what each party can do if the business defaults.
Sellers sometimes resist ranking second. Explain why it protects them: the bank’s involvement means a professional has also tested the cash flow, and the seller is still paid from the same business they know well.
How do you put a 70/20/10 deal together, step by step?
- Learn the seller’s retirement goals. How much do they need at settlement, and what income would they like afterwards?
- Calculate reliable cash profit. Remove one-off items and the owner’s personal costs.
- Size the bank loan and the seller note together. Their combined repayments must clear a DSCR of around 1.5x.
- Ask the lender about a working-capital line, so the business is properly funded from day one.
- Put the structure in the letter of intent, including the note’s term and the rollover terms.
- Run due diligence, sign the subordination agreement and close.
What are the risks of a 70/20/10 deal?
- Higher leverage. 90% of the price has fixed repayments. A bad year bites harder than in 60/40.
- Two creditors. The bank and the seller both need paying. The seller note usually ranks behind the bank, and the bank must agree to it.
- Security and guarantees. With more debt, a lender may ask for more security. Negotiate this early.
- A small but real minority partner. Even 10% needs a shareholders’ agreement covering dividends, exit and buy-back.
What kills 70/20/10 deals?
- Squeezing the seller note into too short a term. The repayments fail the DSCR test, and the lender walks.
- Forgetting working capital. If there is no working-capital line, the new owner is short of cash in month two.
- Leading with structure before trust. Understand the seller’s goals first, then show how 70/20/10 meets them.
How G&L M&A Advisory uses 70/20/10
G&L M&A Advisory structures deals over-financed at a DSCR of around 1.5x, combining commercial debt, seller finance and seller rollover to suit the seller. Read the full comparison in how to buy a business with no money down.
If you own a $1M+ business and want to buy a competitor or a retiring owner’s business, see if you qualify for an acquisition strategy call.