Vendor Finance: A Realistic Option for Smart Business Buyers

In today’s business sales market, vendor finance can sound like a clever workaround to the classic “I need more capital” problem. But in practice, it’s not as common or as easy as some buyers hope—especially with newly listed businesses.

What Is Vendor Finance?

Vendor finance is a deal structure where the seller agrees to defer part of the purchase price, effectively acting as a lender to the buyer. It’s typically structured as a formal loan agreement with interest, security, and repayment terms—just like a bank loan.

Most vendor finance deals are modest—commonly covering up to 20% of the total purchase price. Beyond that, sellers start feeling more like lenders than vendors, and they’ll expect protections that reflect that risk.

Why It's Rare—And When It’s Possible

Let’s be blunt: most business sellers prefer a clean cash exit. That’s why brokers aim to secure full cash offers early in a listing campaign. If a business is fresh on the market, talking about vendor finance too soon is usually a waste of time. These sellers are still testing premium price expectations and aren’t yet open to creative structures like earn-outs or vendor terms.

But over time, reality sets in. Many businesses take 6 to 12 months—or longer—to sell. As that window stretches, some owners become more flexible. That’s when vendor finance discussions become more realistic.

Your best shot as a buyer? Target businesses that have been sitting on the market for a while with no bites. These sellers may be fatigued, more open to negotiation, and receptive to risk-sharing to get a deal done.

Trust is Everything—And Often Missing

Vendor finance is fundamentally a loan. That means trust is critical.

In deals where the seller is staying on in some capacity—say, as a consultant or a minority shareholder—it’s easier to build that trust. But when buyer and seller are strangers and there’s no ongoing relationship, trust is hard to manufacture.

From the seller’s point of view, vendor finance feels risky: “What if this buyer runs the business into the ground? How will I get my money back?” That’s a fair concern, especially without any performance track record to go on.

Terms Sellers Will Insist On

Sellers who offer vendor finance will typically want:

Personal guarantees—often secured against the buyer’s personal property (like their home).

Interest payments—often 6–10% p.a., depending on risk.

Security over business assets or shares.

Strict repayment schedules with default triggers.

Good brokers will ask you one thing first: have you tried the bank? If you can’t secure funding from a financial institution, it begs the question—why would the seller view your risk profile any differently? If the bank says no, a vendor will assume there’s a good reason for that.

The Smarter Way to Pitch Vendor Finance

If you’re a buyer hoping to secure vendor terms:

Target older listings. Ignore brand-new listings. Filter for businesses on the market for 6+ months.

Prove you’re credible. A solid CV, industry experience, and a thoughtful transition plan go a long way.

Pitch a balanced deal. Don’t ask for 50% vendor finance—it won’t fly. Keep it under 20% unless there’s a strong justification.

Be prepared for security. If you’re unwilling to provide a personal guarantee, it’s probably a deal-breaker.

Final Thought: Structure Follows Motivation

In Australia, vendor finance is not about the numbers—it’s about motivation. If a seller is motivated, they’ll consider it. If not, they won’t.

Vendor finance isn’t for every deal. But for patient buyers targeting the right opportunities—and willing to de-risk the offer—it can bridge a funding gap and unlock deals that others walk away from.