What Is Vendor Finance? How Seller Finance Works in Australia
Vendor Finance
Vendor finance · Seller finance · Australian business sales
Vendor finance, also called seller finance, is how many Australian business sales close the final gap when a bank funds the bulk. This guide explains what it is, how a business-sale carry is structured and secured, and when another funding path fits better.
Quick Answer
Vendor finance is when the seller of a business leaves part of the sale price in the deal and is repaid over time, usually behind a bank. Also called seller finance or a vendor carry, it helps a buyer bridge an equity gap on a business purchase.
What is vendor finance in Australia?
Vendor finance is a business sale where the seller leaves part of the agreed price in the deal and the buyer pays it back over time, usually with interest and usually ranking behind a bank. The seller, the vendor, becomes a lender for that slice of the price. It is also called seller finance, owner finance, a vendor carry or a vendor take-back, and the slice itself is often recorded in a seller note.
| Question | Short answer |
|---|---|
| What is it? | A loan from the seller of a business for part of the purchase price, repaid by the buyer over time |
| Also called | Seller finance, owner finance, vendor carry, vendor take-back, seller note |
| Who provides it? | The vendor (seller) of the business being sold |
| Where does it sit? | Usually second-ranking, behind the senior bank or non-bank lender, with the senior lender's written consent |
| How is it secured? | Commonly a PPSR-registered security interest over business assets, sometimes a second mortgage and personal guarantees |
| How does it end? | Repaid over the agreed term or refinanced out once the business has traded under the new owner |
| Is it regulated consumer credit? | Usually not: business-purpose credit generally sits outside the National Credit Act, but the actual purpose of the deal decides |
In a business purchase this is a commercial, business-purpose arrangement between two businesses, not the residential rent-to-buy or terms-contract product that shares the name and that several states have restricted. Because the credit is for a business purpose, it usually sits outside consumer credit regulation, though that always depends on the actual purpose and borrower. ASIC notes that where credit is not predominantly for personal, domestic or household purposes it is not regulated under the National Credit Act, and that predominantly means more than a fifty per cent consumer component (ASIC, does the credit legislation apply, accessed 7 July 2026). That is general guidance only, and the purpose of your specific deal should be tested with your adviser. For the commercial side of a live deal, our vendor finance page covers how Switchboard structures a carry, and the glossary entry gives the short definition.
How does vendor finance work in a business sale?
It works as a stack that has to reach the full price. The buyer puts in a deposit, a senior lender funds the bulk, and the vendor carries the last slice as a loan repaid over an agreed term. In practice the steps run in this order:
- Buyer and seller agree the price and how much the vendor will carry.
- The buyer arranges a deposit and a senior facility for the bulk of the purchase.
- The senior lender is asked to consent to the vendor sitting behind it, in writing.
- A solicitor documents the vendor loan, the security and the ranking between the lenders.
- Settlement completes, the buyer trades the business, and the carry is repaid or refinanced out.
The carry usually sits second behind the senior lender, so the senior lender's written consent is the deal-critical item. Most buyers plan from day one to refinance the carry out once the business has traded under new ownership and a lender can assess that record.
When does vendor finance make sense for a buyer or seller?
It makes sense when there is a genuine gap between what a lender will advance and the price, and both sides would rather bridge that gap than lose the deal. It reads differently from each end.
If you are the buyer
- Bridges a shortfall you cannot cover with more security
- Keeps a good business in reach when the valuation sits below price
- Signals seller confidence in the business you are buying
- Still expects a real deposit and a serviceable deal
If you are the seller
- Widens the buyer pool and can support the price
- Earns interest while you step back from the business
- Carries one main risk, getting paid, which security manages
- Needs the bank's consent to sit behind its loan
You will also see the structure advertised from the other direction: business listings tagged vendor finance business for sale or owner financed are signalling that the seller is open to carrying part of the price for a qualified buyer. If you are weighing a carry to close a deposit shortfall, our note on using vendor finance for a deposit gap works through a first venue purchase.
What terms usually sit in a vendor-finance deal?
A vendor carry is a real loan, so the same terms a bank would set are agreed between buyer and seller and written down. The table below is the shape most business-sale carries take. Treat it as a checklist to work through with your solicitor and broker, not a template to copy.
| Deal term | What it usually covers | Why it matters |
|---|---|---|
| Deposit | Buyer's own contribution at settlement | Shows real skin in the game |
| Deferred amount | The slice the vendor carries | Sizes the seller's exposure |
| Interest | Rate and whether interest-only early | Prices the carry over its life |
| Repayment term | How long until the carry is cleared | Sets the exit horizon |
| Security | Second mortgage and or registered business-asset security | Gives the seller recovery rights |
| Guarantees | Personal or director guarantee | Puts a person behind the company |
| Covenants | What the buyer must and must not do | Protects the business while owed |
| Default | What counts as default and remedies | Decides what the seller can do |
| Senior consent | Bank's written agreement to rank first | Makes the second position real |
| Refinance exit | The path to pay the carry out | Both sides price the same exit |
Two of these terms carry most of the negotiation. On interest, there is no set market rate for a vendor carry: the rate is agreed between the parties, and it usually reflects the fact that the seller ranks second behind the bank and is taking more risk than a senior lender would. On term, most business-sale carries are written for a defined period of a few years at most, with a refinance exit planned from day one rather than an open-ended repayment. Any specific rate or term you see quoted is deal-specific, not a market standard.
The commercial side of these terms is what we structure around on the vendor finance page; the loan document itself is your solicitor's work.
What documents and security are usually involved?
Several documents each do a specific job, and the carry is only as strong as the weakest one. The core of the set is the vendor finance agreement, usually drafted as a vendor loan agreement or seller note, sitting alongside the sale contract, the security documents and the priority arrangements. The map below shows which document does what and who usually prepares or registers it.
| Document | Job it does | Who prepares or registers |
|---|---|---|
| Sale contract | Records the sale and the vendor-finance terms | Solicitors for both sides |
| Vendor loan agreement or seller note | Sets the loan amount, rate, term and default rights | Seller's solicitor |
| General security agreement | Grants security over the business assets | Seller's solicitor |
| PPSR registration | Registers and perfects the security interest | Seller or their adviser |
| Guarantee | Puts a person behind the company's promise | Seller's solicitor |
| Priority deed or senior consent | Fixes who recovers first between lenders | All lenders and solicitors |
| Transfer documents | Move the property, lease or licences to the buyer | Solicitors and regulators |
A complete document set is exactly what a senior lender wants to see before it agrees to the carry. Our senior consent pack note walks through packaging this cleanly.
How does PPSR registration affect vendor finance?
PPSR registration is how a seller turns a promise of security into an enforceable, ranked position over the business assets. The Personal Property Securities Register is the national register of security interests in personal property. The PPSR says the grantor, the party giving the security interest, is usually the purchaser, owner or lessee, and grantor details are required for most non-consumer registrations (PPSR, how to register a security interest, accessed 7 July 2026). It also says a registration must accurately describe the property claimed and that the collateral type and class cannot be changed once confirmed (PPSR, collateral type and class, accessed 7 July 2026).
Ranking is the reason registration matters. The PPSR says a perfected security interest normally has priority over an unperfected one, and that the most common way to perfect is registration on the PPSR (PPSR, which security interest has priority, accessed 7 July 2026). Priority has exceptions and is complex, and that same page says to seek legal advice before enforcement action, so the detail here is a lawyer's job, not a do-it-yourself step.
Where PPSR registration goes wrong
- Security agreed in the contract but never actually registered
- Wrong grantor or collateral class, which can affect enforceability
- Registered too late, so another interest ranks ahead
- Assumed priority over the bank without a signed priority deed
How does vendor finance sit with bank or senior lender finance?
It sits behind the senior lender, in second position, and only with the senior lender's written consent. The bank or non-bank senior facility funds the bulk and recovers first if anything goes wrong; the vendor carry fills the last slice and is paid after the senior lender is satisfied. The second position is not automatic, which is why a priority deed and the lender's consent are the items that make or break the structure. Sequencing the whole stack is covered in our note on the acquisition capital stack.
Illustrative capital stack, business purchase
Illustrative structure only, shown top slice to base. Every deal differs, and this is not a quote or an indication of what any lender will advance.
Vendor finance vs business acquisition loan vs earn-out vs seller note
These get talked about together, but they do different jobs, and confusing them is where deals go wrong. The consolidation table below is the comparison the scattered explainers rarely make in one place.
| Funding type | Best used for | Main trade-off |
|---|---|---|
| Vendor finance or seller note | Closing an equity gap behind a senior lender | Seller ranks second and is repaid over time |
| Business acquisition loan | Funding the bulk of a going-concern purchase | Needs serviceability and security |
| Earn-out | Pricing part of the deal on future performance | Not debt, and the amount can change or not be paid |
| Commercial property loan | Buying the freehold or premises | Secured on property at a conservative valuation |
| Private or caveat gap funding | Short, defined timing gaps | Short term and exit-driven, not a long carry |
A seller note is simply the document that records the vendor-finance debt, so it belongs in the first row, not as a separate product. An earn-out is genuinely different: it is performance-contingent rather than a fixed debt, which is why the two should never be collapsed into one thing. For the wider funding picture, the business loans guide maps the acquisition-finance options, and commercial property loans cover the freehold side. Where the gap is pure timing rather than structure, a caveat loan compared with a vendor carry is the better read.
What due diligence should a buyer do before agreeing to vendor finance?
The same due diligence you would do on any business purchase, plus a hard look at whether the deal can service both the bank and the carry. business.gov.au says a buyer should gather information before signing and review the financial records, the business operations and the legal documents (business.gov.au, buy an existing business, accessed 7 July 2026). That is general government guidance, not legal or finance approval advice, but it is the right starting checklist.
Buyer due-diligence checklist
- Verify the trading history and the financial records, not just the summary
- Test that the business can service the senior loan and the carry together
- Confirm leases, licences and key contracts actually transfer
- Check the security and ranking the seller is asking for
- Confirm there is enough working capital after settlement
- Agree a written refinance or payout path for the carry
If the purchase is structured as a share sale rather than an asset sale, there is an extra legal issue to raise with your lawyer: the Corporations Act 2001 includes section 260A on financial assistance by a company for acquiring shares in it or a holding company (Corporations Act 2001, accessed 7 July 2026). Whether it applies is a question for a lawyer, not something to work out yourself. Our note on what lenders check first covers how a funder reads the same file.
What tax, GST and employee-transfer issues need checking?
These are the points that catch people out, and each one is a pointer to confirm with your accountant, lawyer or the regulator, not a number to assume. On GST, the ATO says no GST is payable on the sale of a going concern if certain conditions are met (ATO, sale of a going concern, accessed 7 July 2026). Those conditions have to be checked live with the ATO and your accountant, so do not assume any particular sale is GST-free.
On capital gains tax, the ATO says capital proceeds generally include money or property you receive or are entitled to receive as a result of a CGT event, and deferred payments need care (ATO, capital proceeds, accessed 7 July 2026). Earn-outs are treated separately again: the ATO has look-through guidance for qualifying earnout arrangements (ATO, earnout arrangements, accessed 7 July 2026), which is another reason to keep an earn-out and a vendor carry apart. None of this states your outcome; it tells you what to ask your accountant.
On employees, the Fair Work Ombudsman says that when there is a transfer of business a new employer has to recognise service with the old employer for most entitlements, with exceptions and choices for some (Fair Work, employee entitlements on a transfer of business, accessed 7 July 2026). If the freehold or premises are part of the deal, the property and going-concern side is covered in how commercial property loans work.
Finally, the sale contract and any finance document sit inside unfair-contract-term law. The ACCC says that from 9 November 2023 small businesses are covered by unfair-contract-term protections for new or varied standard form contracts if they have fewer than 100 employees or less than 10 million dollars annual turnover (ACCC, contracts, accessed 7 July 2026). ASIC adds that the same kind of protection applies to standard form contracts for financial products and services, where unfair terms are illegal under the ASIC Act (ASIC INFO 211, accessed 7 July 2026). Whether either applies to your specific negotiated documents is a question for your lawyer.
Broker-observed, indicative only
Across business-purchase, venue and accommodation enquiries, the files that get funded tend to look different from the ones that stall. As of 7 July 2026, and to be confirmed with Nick before you rely on it, these are the patterns we see.
- Fundable files usually have a real buyer contribution, verifiable trading history, clean handover assumptions, enough working capital after settlement, a written refinance or payout path, and seller security documented before completion.
- Senior lenders usually want the vendor carry disclosed early. A hidden side letter or an undocumented carry can break a credit approval, because the real leverage and repayment burden are different from the application.
- The deals that get declined or reshaped tend to share warning signs: no buyer equity, no proof the business can service both the bank debt and the seller debt, vendor terms that try to rank ahead of the senior lender without consent, weak financial records, unresolved lease or licence transfers, or no practical remedy on default.
These observations are indicative only and are not legal, tax or credit advice. Vendor finance terms depend on the sale contract, buyer, seller, senior lender, security, tax position, business performance and legal documentation. Confirm the live structure with a finance broker, lawyer and accountant before relying on it.
What happens if the buyer defaults?
If the buyer cannot pay, the seller enforces the security they hold, but as a second-ranking creditor they recover only after the senior lender is satisfied. That is the whole reason the up-front paperwork matters. The split below shows where each side is exposed and which protections are meant to be agreed before completion, not after something goes wrong.
| Risk area | Buyer exposure | Seller exposure and protection |
|---|---|---|
| Repayment | Owes senior debt and the carry together | Paid only after the bank; needs a serviceable deal |
| Ranking | Loses the business if it cannot service debt | Second behind the bank; needs a priority deed |
| Security | Assets pledged to both lenders | Recovers only if security is registered correctly |
| Guarantee | Personal exposure if a guarantee is given | Stronger position if a guarantee is documented |
| Deposit | Real equity at stake keeps discipline | Larger deposit shrinks the carry's share |
| Exit | Must refinance the carry out in time | Repaid on refinance if trading supports it |
When trading is thin, consent is unclear or security is not registered correctly, a carry moves from smart to fragile fast. Our note on when a vendor carry is smart or a trap works an accommodation-buyer example through those signals.
When should you choose another funding structure?
Choose something else when the problem is not a structural equity gap. If the issue is pure timing between exchange and settlement, that is a job for short-term secured lending such as a caveat loan rather than a vendor carry. If the seller will not carry and the deal genuinely needs more senior funding, the answer is a better-structured business loan or, for freehold, a commercial property facility. And if the buyer simply cannot service both the bank and a carry, a vendor carry does not fix that; it just moves the risk onto the seller. Vendor finance is a tool for a genuine gap backed by a seller who believes in the business, not a workaround for a deal that cannot be serviced. When you want to map the funding stack for a specific purchase, our vendor finance team can talk it through.
Vendor finance lets a seller leave part of the price in a business sale and be repaid over time, usually behind a bank. It wins deals when there is a genuine gap, a real buyer deposit, senior-lender consent, security registered correctly on the PPSR, and a documented exit. It is a commercial, business-purpose arrangement, distinct from an earn-out and from residential rent-to-buy, and the tax, employee and legal points are questions to put to your advisers, not answers to assume.
Key takeaway: a vendor carry is only as safe as the trading case, the senior consent and the paperwork behind it.Frequently Asked Questions
Vendor finance is when the seller of a business leaves part of the agreed price in the deal and the buyer repays it over time, usually with interest and usually behind a bank. It is also called seller finance or a vendor carry. In a business sale it is a commercial, business-purpose arrangement, not the residential rent-to-buy product that shares the name.
Yes. A vendor carry in the sale of a business is a normal, legal arrangement between commercial parties, documented as a business-purpose loan with security registered. It is different from the residential terms-contract and rent-to-buy schemes some states have restricted. Confirm your own deal with your solicitor, because the facts and documents decide how the law applies.
Yes, in a business sale the terms vendor finance, seller finance and vendor carry all describe the same idea: the seller is paid part of the price over time instead of all at settlement. Different advisers and listings use different words for it. What matters is how the loan, security and ranking are documented, not the label.
The buyer pays a deposit, a senior lender funds the bulk of the purchase, and the seller carries the final slice as a loan that is repaid over an agreed term. The carry usually sits second behind the bank, which means the senior lender has to consent in writing. Most buyers plan to refinance the carry out once the business has traded under new ownership.
In most business-sale structures the buyer still contributes a deposit, because the vendor carry is designed to bridge a gap rather than replace buyer equity. A genuine buyer contribution is one of the things that makes a deal fundable and gives the seller comfort. A no-deposit, fully seller-funded purchase is unusual and is a warning sign to both the bank and the seller.
Yes. Where the carry is secured over business assets, the seller usually registers a security interest on the Personal Property Securities Register. The PPSR says a perfected security interest normally has priority over an unperfected one, and registration is the most common way to perfect. Registration details and priority are technical, so this is a step to run with your lawyer.
Yes, sellers often ask for a personal guarantee from the buyer or its directors so there is a person standing behind the company's promise to pay on the vendor carry. A guarantee and an indemnity are not the same thing, and the wording decides what the seller can actually enforce. Guarantees are a legal-document question for your solicitor, not something to agree on a handshake.
Neither is better; they do different jobs. Vendor finance is deferred debt: a fixed amount the buyer owes and repays. An earn-out ties part of the price to how the business performs after sale, so the amount can change or not be paid at all. The ATO treats qualifying earn-outs under separate look-through rules, which is one reason to keep the two apart and get accountant advice.
If the buyer cannot pay, the seller enforces the security they hold, but ranking second means they recover only after the senior lender is satisfied. A large deposit, correctly registered security, and a deed of priority agreed up front are the protections that decide how a second-ranking seller actually fares. This is why the security and consent paperwork matters before completion, not after something goes wrong.
Yes, and that is the most common structure: a senior bank or non-bank loan funds the bulk and the vendor carry sits behind it. The senior lender usually wants the carry disclosed early and set out in a deed of priority, because a hidden or undocumented carry changes the real leverage and can break a credit approval. Talk to a broker about how the carry and the senior facility fit together.
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