So, Mike & Bill decide they like to work together. Mike has a thriving business and sells 1/2 to Bill. Bill is a bit shy of cash, so Mike loans Bill enough money each year to make the payment for the business, paying off the sale in 3 years. There is now a personal loan, (unsecured?) between Mike & Bill that is not associated with the new partnership. Bill can establish that the loan was to fund his business interest and could therefore take the interest expense as a UPE on his Schedule E. Mike should be able to take the gain over 3 years, while still receiving P&I from Bill for the 3 separate loans over a longer period.

Does this work for you? I think it does for me.