Vendor Finance as a tool to achieve an appropriate sale price for your business

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In recent times it is not unusual to use the terms vendor finance and business sales in the same sentence. As the willingness of bankers to lend to buyers of business tightens we are seeing a growth in the number of vendors of businesses (or business interests) needing to offer their buyers some vendor finance in order to facilitate the sale.

Rather than running from this, we are seeing that this can have positive benefits for the seller, the buyer and for the business itself.

Sellers / Vendors:

  • A sale will usually trigger a GCT event of the whole interest being sold, so make sure there is enough cash to pay the tax bill when it comes
  • The sale price can be for a “solid value” rather than “fire sale” to get the cash out
  • Even if you get the cash out, that money needs to find a home, so why not invest in the buyer and the business as you would make any other investment for an agreed return (interest rate)?
  • An agreed Principal & Interest (P&I) repayment schedule and term should be agreed supported by a Loan Agreement and appropriate security and personal guarantees are essential.
  • Consider the use of “key ‘man’” insurance as part of the security and consider who “owns” the policy and to whom the proceeds will be paid if the insurance responds.
  • When you provide vendor finance, you need to put a “banker’s hat” on. A Statement of Assets and Liabilities from the Buyer would normally be part of the disclosure required
  • If the interest rate is variable, how often does it vary and how is it to be determined?
  • If there is default, what is the remedy, to seek to take back the interest (or part of it) that has been sold / sell up the security?

Buyers / Purchasers:

  • Treat the Seller with the respect and performance you would usually give to your bank and make your repayments on time
  • If you are also borrowing from a bank the bank will need to know about and consent to the vendor finance
  • It is likely that you bank and the Seller will want to take security over the same assets and therefore a Deed of Priority may be needed (usually giving the bank first priority over the secured asset but only up to an agreed level)


  • The Seller may want to maintain an active albeit reduced role in the business to seek to protect the cash flow that will go to repay the vendor finance obligations
  • This can have a very positive effect for the business by motivating the Seller to remain interested, connected and engaged with the ongoing success of the business

Our Business / Commercial lawyers act regularly on Business Sale and Purchases and in documenting the vendor finance arrangements that are often going with them.

For more information regarding Vendor Finance and Business Sales

Please contact our Business Development Team or call us on (07) 3252 0011 to book an appointment with one of our specialist Commercial Lawyers today.