What is Vendor finance? In simple terms it is money left in a transaction by the owner so he/she can achieve the asking price for their business when there is a shortfall in a purchaser’s equity plus Bank Finance matching that price.
Vendor finance can take many guises from a straight ‘no strings’ loan through to a complex ‘earn out’ arrangement that is based on the business achieving a series of milestones.
Vendor finance is far more prevalent when the market is down. Purchasers, their advisors and especially Financiers see it as a way to mitigate risk.
In its purest form Vendor finance offers a purchaser an opportunity to bridge a gap between what he/she has in personal equity + bank finance equals something close to the purchase price. The purchaser will be able to offer some security and in most cases pay the owner an interest rate that is close to bank rates.
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