What is VENDOR FINANCE?
For Small Business owners wanting to sell their business, the term “vendor finance” is not normally an option that is discussed when selling a business in Australia
So what is vendor finance? It is simply your money left in a transaction by you (the vendor) so you can achieve the asking price for the business when there is a shortfall in a purchaser’s equity and/or Bank Finance.
Vendor Finance comes in many forms, from a straight “no strings” loan to a more involved “earn out” arrangements that is based on the business achieving a series of milestones.
Vendor finance is found more frequently when the market is down and the Banks aren’t lending. As it is now, a purchaser’s adviser and especially financiers see it as a way to lessen then risk.
Put simply, vendor finance offers a purchaser an opportunity to bridge a gap between what they have in personal equity and bank finance to equal something close to the purchase price. The purchaser will be able to offer some security and, in most cases, pay the owner a commercial interest rate that is agreed upon by both parties.