Vendor finance in local business sales — when it helps and when it hurts
Earn-outs and vendor finance are common in Australian SME sales. What owners should consider before offering terms to a buyer.
Not every buyer can write a cheque for the full purchase price on settlement day. Vendor finance — where the seller lends part of the purchase price to the buyer — keeps deals alive. It also keeps the seller exposed long after they thought they had left.
When vendor finance makes sense
- The buyer is a trusted manager who has run the business for years
- Cash flow supports repayments without starving working capital
- You have secured the debt against business assets and personal guarantees where appropriate
- The term is short — typically three to five years, not open-ended
When it creates risk
- The buyer has no track record managing at your revenue level
- Repayments depend on growth assumptions neither party has tested
- You need the full sale proceeds for retirement living costs immediately
- The business relies on your personal relationships with key customers
Structuring with your solicitor
We do not draft finance agreements, but we help owners list the commercial terms they want their solicitor to encode: interest rate benchmarks, default triggers, reporting requirements, and what happens if the buyer wants to on-sell within the finance period.
The exit planning workshop
Our Exit Planning Consultation includes a scenario exercise where you model three deal structures — full cash, partial vendor finance, and earn-out tied to performance. Seeing the numbers side by side often clarifies which risks you are willing to carry.
The garden supply retailers in Alice Springs who worked with us chose to fix their inventory system first rather than offer vendor finance to a buyer who lacked retail experience. Two years later, they sold for a higher price to a buyer who did not need seller funding. Patience was part of the plan.