Sell My BusinessVendor Finance
For those that are not familiar with the term ‘Vendor Finance’ this article is to help explain what it is and how important it can be for the sale of a business.
Vendor Finance is where the vendor or the business owner effectively lends the buyer of the business a part of the purchase price in order to make the sale of their business more likely.
Vendor financing is also known as deferred payment or can take the form of an ‘Earn-Out’ and is an excellent way to help ‘oil the wheels’ for a business sale and is better explained by way of an example:
With a business valued at say £400,000, where the buyer does not have £400,000 in the bank, the business could be finances, as follows:
– Buyer’s own capital – £100,000
– Bank loan – £150,000
– Vendor finance – £150,000
The total making £400,000 – the bank needs to be happy with the above deal when they lend their £150,000 and the bank loan, in the first place, is subject to the deal being one that the bank is happy to lend on.
The advantage of offering vendor finance when you put your business up for sale is that it increases the chances of you selling a business, as it opens the market up to more potential buyers, buyers who might not ordinarily have the money to buy your business.
The terms that are set for vendor financing are up to the buyer and seller to agree and include the length of time over which it is paid, whether or not interest is charged on the loan and whether the financing is secured or not.
BowFin are supporters of Vendor Finance and actively encourage sellers of businesses to accept it as part of the agreed sales price.
[...] If the price is right most businesses will sell relatively quickly and if it is a quick sale you are after, then your sales prices needs to be keen, which is like any asset you are trying to sell. Most importantly, be open to offers and be prepare to be flexible on payments terms, including the acceptance of vendor finance. [...]