Published : 7 November 2016

A seller’s instinct is to ask for an all-cash deal from a purchaser. However, in the current economic climate it may be difficult for some small businesses to acquire finance from banks and traditional lending institutions. Thus vendor financing may be part of many small business acquisitions. 

Vendor financing also makes sense for both the vendor and the purchaser for a couple of reasons.  Firstly, if the vendor is willing to provide financing, it shows the purchaser that the vendor is confident that the business will continue to perform at the same level or better to cover the financing. It also works for the vendor, because businesses that include vendor financing typically attract more initial interest from purchasers and often generate a higher sales price than a business without vendor financing. In some cases, the ongoing payments and interest on the loan also suit the interests of the vendor as they can be better than what may have otherwise been achieved in a bank.  In short, providing vendor financing is an important part of setting both price and terms of sale, and could make the difference between selling your business for a top price and not being able to sell it at all.