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Vendor Finance

We're experts in advising clients in vendor financed sales.

We can prepare or review the paperwork for you and advise you of the risks and benefits, whether you are the vendor or the purchaser.

  • What is vendor finance?

    Vendor finance is when the person selling a business or home also funds part of the purchase price. The buyer pays an agreed amount upon settlement, and the balance (including interest) is paid via regular repayments over a set period of time.

    These arrangements involve a loan agreement between the parties. Using vendor finance can present risks and benefits for vendors and purchasers alike, but they are becoming more popular as Australia’s population ages and more businesses and homes are hitting the market.

  • Why would I use vendor finance for a business sale?

    Benefits for the vendor:

    • You can secure a deal, despite a lack of funding options available to the purchaser
    • You may secure a higher price for the business than you might otherwise have don
    • You can earn interest on the balance of the loan over the repayment period
    • You no longer need to run the company, but continue to have an income stream

    Benefits for the purchaser:

    • You do not need large funds of your own
    • You can pay off the debt using the business’ profits
    • You can take control of the business and make it more profitable
  • What if I’m buying or selling a home?

    Vendor finance also helps vendors and purchasers buy and sell residential properties. Offering vendor finance can broaden the pool of potential buyers and help vendors secure their asking price, plus it can mean the property is sold more quickly and does not need to be discounted for a quick sale.

    The benefits of vendor finance in residential sales include:

    • Vendors and purchasers can choose a home payment plan that suits both parties, rather than using a standard home finance package
    • It helps home buyers who cannot secure finance from a bank (eg, because they are self-employed), or whose bank loan has fallen short
    • It attracts investors (eg because an investor can minimise their cash outlay, renovate the house and then borrow more against the renovated property)
    • It’s useful for properties in regional Australia, in areas where banks will not lend
  • What risks are there for the vendor?

    A purchaser may default on its repayments, but there are effective ways to minimise the financial risks of providing vendor finance. These include:

    • Ensuring that any loan agreement is properly documented by an experienced lawyer
    • Using ‘repayment’ and ‘interest rate’ provisions that are commercially appropriate
    • Securing the loan by the business’ assets and ensuring the security is sufficient
    • Not providing too much finance (this may reduce the purchaser’s financial commitment to the business)
    • Ensuring the purchaser has a good credit rating

    Whether you are the vendor or purchaser, you should seek legal advice and have a loan agreement drafted to ensure that the arrangement is legally binding on both parties. An agreement will typically include the amount being borrowed, the interest rate, the repayment schedule, the term of the loan, details of any securities, and what will happen in the event of default.

    Any vendor finance arrangement will have its own risks. For example, the business’ assets can depreciate if the business is poorly run, and a guarantor may sell their personal assets. These risks should be weighed against the potential benefits and discussed with your vendor finance lawyer.

Why choose Slater and Gordon?

We have acted for a range of clients in vendor financed sales and are experienced in how to manage these in a fast, effective manner.

There are different forms of vendor finance – including instalment sales, rent to own and deposit finance – and we always suggest getting legal advice so you can choose the framework that is most relevant to your circumstances.

By choosing us, we promise to:

  • Negotiate your best outcome
  • Minimise stress
  • Consider all relevant factors and minimise your risk
  • Draft your loan document, tailored to your circumstances
  • Handle disputes and defaults if and when they arise

Make an enquiry

If you have a question, want some more information or would just like to speak to someone, make an enquiry now and we’ll be in touch with you very soon.

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