Vendor Finance When Buying a Business: How the Carry Work
Business Owners Hub
Vendor carry · Deed of priority · Buying a business
The seller leaving part of the price in the deal is the easy part. What decides whether it works is where that money ranks against the bank funding the rest, and who has to agree before it does.
Quick Answer
Vendor finance is the slice of a purchase price the seller agrees to leave in the deal and be paid later. It sits behind the bank funding the rest, not beside it, so how it ranks and whether your lender consents decide whether the structure survives. It is lawful everywhere in Australia. If you are already partway through a transaction, start at where you are in the deal, because what can still be changed depends on it.
Also called: vendor carry, vendor carry-back, seller finance, seller financing
What changes when the seller carries part of the price?
What changes is the number of parties who have to agree. A cash purchase funded by one lender has two decision makers, you and that lender. The moment the seller agrees to leave part of the price in the business and be paid later, there are three, and the two lenders do not rank equally. The seller becomes a creditor of the deal you are buying, and the bank funding the rest of the price almost always requires that its own debt sits in front.
That single fact drives almost everything else on this page. It is why the carry is disclosed rather than kept between you and the seller, why a priority deed exists, why the carry is counted as debt and not as your contribution, and why a carry agreed late in a transaction is the one most likely to fall over. If you want the plain definition of the instrument rather than its behaviour inside an acquisition, that sits on our guide to vendor finance. This page is about what it does to the funding stack.
The structure itself is ordinary. A seller who wants a clean exit at a firm price, and a buyer who can service the business but cannot cover the whole price at settlement, have an obvious trade available: the seller takes part of the price over time, usually with interest, usually with security, and the deal completes. The complications are not in the idea. They are in the ranking, the paperwork and the timing, and they are the parts nobody explains.
Which vendor finance are you actually looking for?
Three unrelated arrangements share the phrase in Australia, and searches for it land on all three. Only the first is the subject of this page. If you arrived here about a house, this is not your page and the mechanics below will not transfer.
| What people call it | What is actually happening | Covered on this page |
|---|---|---|
| Vendor finance buying a business, vendor carry, seller finance | The seller of a trading business leaves part of the sale price in the deal and is repaid by the buyer over time, usually secured, usually behind a commercial lender | Yes, this is the whole page |
| Vendor finance, instalment contract or rent to buy on a home | A consumer buys a place to live and pays the seller over time instead of obtaining a mortgage. A consumer transaction under a different regulatory frame | No, and nothing here should be read across to it |
| Vendor finance or supplier credit in trade | A supplier of goods extends payment terms to a customer after shipment. No business is being sold | No, the security, documents and tax treatment all differ |
| Vendor finance on land or a development site | A landowner carries part of the price of the land itself. Security sits on the land title register, not the personal property register | Only where premises come with the business, in the security section below |
If you arrived looking for the plain definition rather than the acquisition mechanics, the vendor finance glossary entry is the shorter read.
Is seller financing legal in Australia?
Yes. A seller carrying part of the price of a trading business is an ordinary lawful commercial arrangement, and there is no Australian state or territory in which it is prohibited. The question gets asked constantly, and it gets asked because the phrase is shared with consumer property arrangements where the rules are genuinely tighter and where regulators have intervened. That is a different transaction, and the doubt does not carry across.
What is worth understanding instead is which regulatory regimes reach a business carry and which do not, because the answer is not that none of them do. Credit provided predominantly for business purposes sits outside the National Credit Act, and the regulator states that lenders providing only commercial loans need not hold a credit licence or belong to the external dispute resolution scheme, and that the law gives the lowest level of protection to commercial loans, including loans to small businesses. That cuts both ways: it is why a one-off seller carry does not drag the seller into a licensing regime, and it is also why a buyer has fewer places to complain if the document is bad.
| Regime | Does it reach a business carry | What that means in practice |
|---|---|---|
| National Credit Act and credit licensing | Generally not, where the credit is predominantly for business purposes | A seller carrying part of a business price is not thereby providing consumer credit, and the regulator's position is that commercial-only lenders need no credit licence |
| External dispute resolution scheme | Generally not | There is usually no free ombudsman route on a commercial carry; a dispute is a court or negotiation matter |
| Unfair contract term protections | Capable of reaching it, where the carry is on a standard form small business contract | A seller's off the shelf loan document is exposed to this regime, which is a reason for the seller to take advice too |
| Personal Property Securities Act | Yes, wherever security is taken over business assets | Registration, ranking and enforcement all run through the Act, as set out further down this page |
| State instalment contract and rent to buy rules | No, these govern land and homes | The Victorian and Queensland rules people cite are property rules; they are not about the sale of a trading business |
| State duty and revenue law | Yes, on the transaction, not on the carry | Duty follows what is being transferred, particularly any land, and differs by state |
Regime coverage stated at a general level from the Australian Securities and Investments Commission pages linked in this section, read 2 September 2026. General information only, and not legal advice. Whether any licensing, disclosure or registration obligation attaches to a particular seller depends on the facts of that arrangement and is a question for a solicitor, not for a website.
The state-by-state version of the question usually turns out to be the property question wearing different clothes. The specific Victorian claim that comes up most often is answered in our note on whether vendor finance is legal in Victoria. Queensland, New South Wales and Western Australia each have their own property rules and their own duty positions, and none of them makes a business carry unlawful. If your deal includes the premises as well as the business, the land side is where state law starts to matter, and that is covered in the security section.
Lawful is not the same as safe, though, and that distinction is the whole point of the rest of this page. A carry can be perfectly legal and still be a bad instrument, because it was drafted as a demand loan, registered against the wrong entity, or never disclosed to the lender funding the balance.
Where are you in the deal, and what can still be changed?
Almost everything about a vendor carry is decided before the contract goes unconditional, and almost nothing after it. That is the single most useful thing to know before reading further, because the advice that follows is worth a great deal at one end of a transaction and very little at the other. Most people find this page somewhere in the middle.
| Where you are | What is still open | What is already fixed | The move from here |
|---|---|---|---|
| Looking at businesses, nothing signed | Everything: price, structure, whether a carry exists at all, who carries what | Nothing | Ask your broker what your total borrowing capacity is before you negotiate, so the carry is sized to the gap rather than to hope |
| Offer accepted or heads of agreement signed, contract not signed | The carry's size, term, security, ranking and whether the seller can carry at all given their own debt | The headline price, in practice, and often the goodwill and plant split | Confirm the seller's own financier can be discharged at settlement, and put the carry to your lender now |
| Contract signed, finance condition still live | The priority deed terms, the loan document, the guarantee, the repayment schedule | Price, parties, settlement date, and the finance clock is running | Disclose the carry to the lender in writing before the finance condition is satisfied, not after |
| Finance approved, priority deed being negotiated | Standstill wording, enforcement triggers, who pays the legal costs of the deed | The lender's requirement that it ranks first, which is rarely negotiable | Warn the seller that a standstill is coming before their solicitor reads it cold, because this is where deals stall |
| Contract unconditional, carry agreed but never disclosed | Very little, and the exposure is now yours | The finance condition is gone, so the contract cannot be exited on finance | Disclose immediately and take legal advice the same week; a late disclosure is a smaller problem than a discovered one |
| Settled, carry in place, repayments are a struggle | Negotiation with the seller, refinance of the carry, restructure of the schedule | The security, the ranking and the guarantee, all as drafted | Read the priority deed first, because it may restrict what the seller can do to you and what you can offer them |
General information only, and not financial or legal advice. What is open in any particular transaction depends on the contract, the finance clause and the security documents, none of which this page has seen. The last two rows in particular are situations to take to a solicitor rather than to resolve from a website.
If your row is one of the last two, read the section on what happens if the buyer cannot pay and the section on who answers which question before anything else. If your row is one of the first three, the rest of the page runs in the order the decisions actually arrive.
Does your bank have to agree to vendor finance?
In practice, yes. A lender funding the balance of a business purchase will treat an undisclosed vendor carry as a material change to the transaction it approved, and the loan documents will usually require disclosure of any other borrowing or any security granted over the assets. The consent is not a courtesy. The senior lender is being asked to lend against a business that will carry a second creditor from day one, and it prices, structures and sometimes declines on exactly that basis.
The disclosure has to happen early, and this is the single most common sequencing error we see. A buyer negotiates the carry with the seller while the finance application is already running, satisfies the finance condition on the original figures, and then tells the lender. At that point the lender is not being asked to consider a structure, it is being asked to re-approve one, and the contract is often already unconditional. The order that works is the reverse: the carry is raised with the lender while the application is live, and the finance condition is satisfied against the structure that will actually settle.
What the lender is testing is narrower than most buyers expect. It is not usually asking whether a vendor carry is a good idea.
| What the lender is testing | Why it matters to them | What usually satisfies it |
|---|---|---|
| Does our debt still rank first | Their recovery position if the business fails depends on order, not on who lent more | A priority deed, plus the seller's registration made in the agreed order |
| Can the total debt be serviced | The carry adds a second set of repayments to a business they have already stress tested once | The trading figures retested against senior repayments plus the carry's schedule |
| Can the carry be called at a bad moment | A seller demanding repayment mid-trading damages the business the lender has security over | A term loan with a fixed schedule, and a standstill in the priority deed |
| Is the contribution genuine | A buyer with no real skin in the deal behaves differently when trading gets hard | Evidence of your own funds, separate from the carry and not borrowed |
| Is it a loan or is it contingent price | A loan is debt on the balance sheet; an earn-out is price and is treated differently | One document that is clearly one thing, not a hybrid of both |
| When were we told | Disclosure after the finance condition is satisfied looks like a changed transaction, not a disclosed one | Written disclosure while the application is live and the finance clause is still open |
What if the carry appears close to the finance deadline?
Ask for an extension of the finance condition in writing before it expires, rather than letting it lapse and hoping. A vendor carry introduced late is not a small amendment to a lender: it changes the debt total, the security position and often the approval conditions, and the assessment restarts rather than resumes. That work does not compress to fit your contract dates.
Two clocks are running and they are not the same clock. The finance condition has a date in your contract. The lender's consent to the carry, and the negotiation of the priority deed between three sets of solicitors, runs on its own timetable and nobody controls it. Satisfying the finance condition while the priority deed is still in draft is the sequencing that leaves buyers exposed, because the contract is unconditional and the structure is not yet agreed.
If the condition lapses without an extension, what happens next is contractual: the deposit may be at risk, the seller may be able to issue a notice to complete, and the remedies depend on the wording of your clause and your state. That is a question for your solicitor the day it becomes live, not the week after.
Borrowing capacity, the documents a lender asks for and the reasons acquisition finance gets declined are covered separately in our guide to getting a loan to buy a business. What matters here is that the carry is one of the facts that application has to include, and that the answer often comes back as consent with conditions rather than a flat yes or no. Those conditions are usually about ranking, and ranking has a document.
What is a deed of priority, and why does the bank want one?
A deed of priority is the agreement that fixes the order in which two secured creditors get paid, and the bank wants one because registration order alone does not give it certainty. The default position is that the first party to register on the Personal Property Securities Register ranks first among perfected interests. That default can be displaced, and a senior lender that is about to fund most of a purchase price does not want its position to depend on the sequence of registrations, on a purchase money security interest it did not anticipate, or on what a seller might register later.
The mechanism sits in the Personal Property Securities Act itself, and it is broader than it is usually described. Section 61 does not merely allow one secured party to rank behind another. It allows a secured party to subordinate its security interest to any other interest in the collateral, and it lets a third party for whose benefit the subordination is intended enforce it. That second limb is what turns a private agreement between a bank and a seller into something with teeth.
What the deed usually does, beyond ranking, is govern behaviour. It commonly restricts when the seller can demand repayment, restricts enforcement while the senior facility is on foot, and sets out what happens to the carry if the senior lender enforces. That standstill is the part sellers push back on hardest, because it is the part that converts a debt they thought they controlled into one they cannot act on alone. It is also the part the bank is least willing to give up. If you want a worked example of a priority deed sitting behind an acquisition facility, our note on a motel expansion acquisition walks through one, and the register itself is explained in our PPSR glossary entry.
One cost nobody budgets for: the deed is a document three sets of lawyers can bill on. There is no default rule about who pays, lenders commonly pass their own legal costs to the borrower under the facility documents, and the question tends to get raised after the deed has already been marked up twice. Settle it at the same time you raise the carry.
Scenario: the bank already holds a general security agreement
A buyer's lender takes a general security agreement over the operating company as a condition of the acquisition facility. The seller then asks for security over the same business for the carried portion of the price. Both interests attach to the same collateral, so the question is not whether the seller can register, it is where the seller sits when both are registered. The lender's answer is a priority deed: the seller registers, the seller ranks second, and the seller agrees not to enforce while the senior facility is on foot. The seller has not lost the security. The seller has agreed, in advance and in writing, about the order and the timing. Deals stall here more often than anywhere else, because the seller reads the standstill as a loss of control and the buyer has usually not warned them it was coming.What is actually in a vendor finance agreement?
A statement of what is owed, when it falls due, what counts as default, what the seller can do about it, and where the seller sits against the bank. Those five things are the spine. Everything else in the document is detail hanging off them, and a carry that is missing any one of them is the kind that comes apart later.
The first question is where the carry lives. It can sit as a set of payment terms inside the sale of business contract, or as a standalone loan agreement or deed executed at the same time. Standalone is the more common shape where security is being taken, because the security documents, the guarantee and the priority deed all need something to attach to that survives settlement, and the sale contract is largely spent once settlement happens. Terms buried in the sale contract are the shape most likely to leave a seller holding a promise with no mechanism behind it.
| Clause | What it does | What to check before signing |
|---|---|---|
| Parties and borrowing entity | Names who owes the money | That the borrower is the entity actually buying, and that it matches the entity named in the security registration |
| Principal | Fixes the carried amount and how it was arrived at | That it reconciles to the price and the settlement statement, and that it is a fixed sum rather than a formula |
| Interest | Sets the rate, how it accrues, and whether it capitalises | Whether interest is payable from settlement or deferred, and what the default rate is, which is often a different number |
| Repayment schedule | States what is payable and when | That there is a schedule at all. A carry repayable on demand is the single most common defect |
| Events of default | Defines what counts as going wrong | Whether default under the senior facility cross-defaults the carry, which can put you in default on both at once |
| Acceleration | Makes the whole balance payable on default | Whether any cure period applies, and whether acceleration is restrained by the priority deed |
| Security schedule | Lists what secures the loan | That land and personal property are dealt with by separate instruments, because one registration cannot cover both |
| Subordination and standstill | Ranks the carry behind the senior lender and limits when the seller can act | Whether the wording sits here, in a separate priority deed, or nowhere at all, which is the position the bank will not accept |
| Set-off against warranty claims | Lets the buyer reduce payments to meet a breach of the seller's warranties | Whether set-off is permitted, capped or excluded. Sellers push to exclude it; buyers treat the carry as their only real security for warranties |
| Restraint of trade | Stops the seller competing during the carry | Whether breach of the restraint is an event of default under the loan, or only a claim under the sale contract |
| Personal guarantee | Puts a person behind a company borrower | Whether it is capped, whether it survives sale of the business, and whether a spouse is being asked to sign |
| Assignment | Says whether the seller can sell the debt on | Whether you can end up owing a third party you never dealt with |
| Costs and prepayment | Allocates legal costs and sets whether early repayment is allowed | Who pays for the priority deed, and whether you can refinance the carry out without a penalty |
A drafting checklist, not a precedent and not legal advice. Clause names and contents vary between documents and between practitioners, and no template is published or endorsed here. Have the actual document reviewed by a solicitor before it is signed.
Two of those rows carry most of the disputes. Set-off is the first: a buyer who discovers after settlement that the trading figures were not what they were told usually finds the carry is the only asset they can practically reach, and a seller who has excluded set-off has closed that door in advance. The second is cross-default. Where the carry defaults automatically because the senior facility has defaulted, a single bad quarter can put the business in breach of both debts simultaneously, which is precisely the moment the standstill in the priority deed becomes the thing keeping the business alive.
Does the documentation change for a share purchase?
Yes, and the page has assumed an asset purchase up to this point, which is the more common shape in a small business sale. If you are buying the shares in the company rather than its assets, the carry attaches to different things and the risk sits in a different place.
| Test | Asset purchase | Share purchase |
|---|---|---|
| What is being bought | The business assets, goodwill, plant and stock | The shares in the company that owns the business |
| Who borrows the carried amount | Your buying entity, which now owns the assets | Usually you personally or a holding entity, not the target company |
| What the seller can take security over | The assets themselves, by registration against the buying entity | Commonly a charge over the shares, and separately over the company's assets if the company grants it |
| Whether the company can grant security for the purchase | Not applicable | A financial assistance question, which has its own Corporations Act process and needs a solicitor |
| Where past liabilities sit | Generally left behind with the seller, subject to what is assumed | Stay inside the company you have just bought |
| Why that matters to the carry | Set-off is about warranties on the assets and the trading figures | Set-off is the main practical remedy for an undisclosed liability surfacing later |
General information only, and not legal or tax advice. Which structure suits a transaction turns on tax, liability and warranty considerations well beyond the carry, and is a question for your solicitor and accountant together.
What we will not do is publish a template. The circulating vendor finance agreement templates are written for no particular transaction, several are not written for Australian law at all, and a security schedule that does not match how the security was actually registered is worse than no document. The practice risk guide published by the professional indemnity insurer for Victorian legal practices names unregistered and unprepared security documents among its recurring claims, and those are claims against solicitors who did this for a living.
Does the carry count as your deposit, or as debt?
As debt, in almost every case. This is the misunderstanding that does the most damage, because it is the one a buyer builds a funding plan on. A vendor carry does not reduce the amount you owe, it changes who you owe it to and when it falls due. Money you contribute yourself lowers the senior facility and disappears from the repayment schedule. Money the seller leaves in the deal stays on the balance sheet as a liability, with repayments the lender counts when it tests whether the business services its debt.
| Test | Cash you contribute | Price the seller carries |
|---|---|---|
| Where the money comes from | Your own funds, paid at settlement | The seller, left in the deal and owed back to them |
| What the senior lender calls it | Equity contribution | Borrowed funds, disclosed as a liability |
| Does it reduce what you borrow overall | Yes, it lowers the senior facility | No, total debt is unchanged or higher |
| Does it enter the serviceability test | No, there are no repayments on it | Yes, its repayments are counted |
| Does the senior lender need to be told | Standard evidence of funds is enough | The arrangement itself has to be disclosed |
| Can it be made to rank behind the bank | Not applicable | Yes, by a priority deed under the Act |
| What happens if it is not disclosed | Not applicable | The finance condition and the approval are both at risk |
| Where it sits if the business fails | Lost with the rest of the equity | Ranks after the senior lender's secured debt |
There is a narrower question sitting underneath, which is whether a lender will accept a carry as part of the equity contribution it requires. Some will consider it, usually where the carry is deeply subordinated, has a long term, and cannot be called while the senior debt is outstanding, which is to say where it behaves less like debt and more like the seller staying invested. That is a policy question and it varies, so treat it as something to test with your business loan application rather than something to assume. What does not vary is the starting point: unless the lender has agreed otherwise in writing, the carry is debt.
Scenario: the bank will fund most of the price and the cash falls short
A buyer has an acquisition facility approved for the bulk of the purchase price, and the contributed cash lands short of what the lender requires at settlement. The seller offers to carry the gap. The tempting reading is that the gap is now filled and the deposit problem is solved. The lender's reading is different: the contribution has not changed, the total debt has gone up, and the serviceability test now includes a second set of repayments. What the lender asks for before it consents is the carry documented, the repayments scheduled, the priority deed agreed, and the trading figures retested against the new total. Sometimes that works. Where it does not, the honest answer is that the deposit was short and the carry did not fix it. Our note on the vendor finance deposit gap follows that situation through.How much of the price will a vendor carry?
There is no reliable published answer, and the more useful thing this page can do is show you how the proportion is actually arrived at. Ranges are widely quoted for how much of a purchase price a seller will carry, what deposit a buyer needs, and what interest a carry attracts. They do not agree with each other. More importantly, every one of them that we could trace is published by a party with something to sell, whether that is the loan, the listing, the legal work or the advisory engagement. None traces to a regulator, an industry body, or a published lender policy.
That is not a small gap. A figure that circulates widely enough starts to be treated as a benchmark, and a buyer who walks into a negotiation holding one is negotiating against a number nobody stands behind. Switchboard publishes no figure of its own here either, and that is deliberate: an unsourced number from us would be exactly the thing this section is warning you about. What we can give you instead is the method, because the method is the same in every deal even though the answer is different in every deal.
How the carried proportion is worked out in a real deal
It is arrived at by testing, not by looking it up, and it runs in this order. The answer falls out of steps four and five, and if step five fails there is no carry to negotiate.
| Step | What is being worked out | Who supplies it |
|---|---|---|
| 1. The seller's cash floor | The minimum the seller must physically receive at settlement, driven by their own debt to be discharged, their tax, agent commission and whatever they are doing next | The seller, with their accountant and their own financier |
| 2. Your contribution | Cash you can genuinely put in, evidenced and not itself borrowed | You, evidenced to the lender |
| 3. Total serviceable debt | The total debt the trading figures will support, senior facility and carry counted together, not separately | The lender's assessment, informed by your broker and the business's financials |
| 4. The senior facility | What the lender will actually advance against this business and this security | The lender |
| 5. The gap | Price, less your contribution, less the senior facility. This is the carry, if there is to be one | Arithmetic, once steps one to four are known |
| 6. The fit test | Whether the gap from step five sits inside the total from step three. The carry lives inside the debt ceiling, not outside it | The lender, before the finance condition is satisfied |
| 7. The seller test | Whether what is left at settlement still clears the seller's floor from step one | The seller, and this is where most proposed carries die |
Method only. No proportion, rate or figure is published here, for the reason set out in this section. The sequence describes how the number is reached in a transaction; it does not predict what any lender or seller will agree to. General information only, and not financial advice.
Two things fall out of that sequence that are worth saying plainly. The first is that the carry is a residual, not a starting point: it is what is left after the lender's ceiling and your contribution, which is why quoting a percentage at a seller before step three is done tends to produce a number that later cannot be funded. The second is that step seven is a seller-side test you cannot perform, which is why the seller's own position matters as much to your deal as the lender's.
| Where the figure is published | What that party is selling | What the figure is measured against |
|---|---|---|
| Lender and broker marketing pages | The loan | That party's own book, which is not a market |
| Business for sale marketplaces | The listing | Deals being advertised, not deals that settled |
| Search engine answer panels | Nothing, they summarise the pages above | Whatever the underlying pages happened to say |
| Law firm explainers | Legal work on the transaction | Matters that firm has acted on |
| Accounting and advisory summaries | Advisory engagements | That adviser's own client base |
| Regulators and industry bodies | Nothing | Nothing published on this point that we could find |
| This page | Nothing on this point | No figure is published here, only the method above |
Provenance assessment made on sources reviewed for this page on 2 September 2026. It is a statement about where published figures originate, not a statement about what any lender or seller will agree to.
What decides the proportion in a real transaction is not a market average. It is the seller's own position and the lender's ceiling, and they push in opposite directions. A seller who needs the full price at settlement to fund a retirement, a tax liability or a next purchase will carry little or nothing. A seller who is comfortable, who wants the price defended, or who is selling to a manager or a family member, will carry more. Our explainer on how vendor finance works covers the mechanics, and the vendor finance page sets out how we structure it.
How is a vendor's loan actually secured?
By registration on the Personal Property Securities Register in most business sales, by a mortgage on the land title where the deal includes premises, and by a personal guarantee from the buyer almost every time. Those are three different mechanisms on three different foundations, and a seller who thinks one registration covers the lot is wrong in a way that only becomes apparent when they try to enforce.
The land point catches people. Land is excluded from the Act's definition of personal property, so a mortgage over land is registered on the land title register, not the PPSR. If you are buying a business together with its premises, the vendor's security sits on two registers, created by two different documents, and either can be got wrong independently of the other. Which security is appropriate where is the subject of our note on residential or commercial security in a business purchase.
Goodwill is the other one worth understanding, because it is usually the largest single component of the price in a walk in walk out sale and it is the component a seller most wants secured. The tax characterisation is that goodwill is one whole, indivisible, and cannot be dealt with separately from the business it attaches to. The practical consequence a broker draws from that is not a legal opinion, it is an observation: security that reaches the business as a whole is the security that reaches goodwill, and there is no clean way to carve goodwill out and take it on its own. The concept is explained in our goodwill glossary entry.
| Asset or exposure | Reached by a PPSR registration alone | What else is needed |
|---|---|---|
| Plant, equipment and fit out owned by the business | Yes | Nothing further, provided the grantor identifier is correct |
| Stock and inventory | Yes, subject to the rules that apply to inventory | Registration drafted with the inventory position in mind |
| Book debts and other intangible property | Yes | Nothing further |
| The business as a whole, including goodwill | Yes, under a general security agreement | A general security agreement rather than a collateral-specific registration |
| Proceeds of the collateral | Yes, where the registration covers them | The registration has to say so |
| Land, and any estate or interest in land | No, land is excluded from the Act | A mortgage registered on the land title register |
| Fixtures | No, the Act excludes interests in fixtures separately | A solicitor's view on what has become a fixture, before signing |
| Assets the business leases rather than owns | No, the business does not own them to grant | A search of existing registrations against those assets |
| Assets already subject to a higher ranking interest | Registrable, but ranked behind | A deed of priority, or acceptance of second place |
| The buyer personally | No | A separate personal guarantee, reviewed before it is signed |
There is a timing trap in registration that is worth naming plainly, because the registry's own guidance does not resolve it. Where a seller's security qualifies as a purchase money security interest, the super priority it carries depends on registering inside a window, and the register states that window in two different units on two different pages. The page explaining purchase money security interests and the page setting out the timing rules do not use the same measure for the same test. We are not going to print a number here and have you rely on it, because the two published statements cannot both be the operative one. What we will say is that the window is short, that it runs from possession or attachment rather than from settlement, that it is different again where the goods form part of the buyer's inventory, and that this is a question to put to a solicitor with the security agreement in front of them rather than a question to resolve from a website. That includes ours.
A personal guarantee is what closes the last gap, and it is why a carry that looks like a loan to a company is very often a loan to a person as well. It is also worth knowing that a deed of company arrangement does not prevent a creditor holding a personal guarantee from acting under it, although during a voluntary administration a guarantee cannot be acted on without the court's consent. Both points come from the corporate regulator's guide for creditors on voluntary administration, not from us, and both are reasons to have the guarantee reviewed by a solicitor before it is signed rather than after.
What does the seller give up by carrying part of the price?
The seller keeps a claim on the business and gives up control of when they are paid. That trade is the whole of the seller's side, and a buyer who understands it negotiates better than one who reads a refusal to carry as obstruction. Roughly half the people who search this topic are sellers who have just been asked to carry, or who have been advised to offer it to get a deal away, so it is worth setting out properly rather than in passing.
| Test | What carrying gets the seller | What it costs the seller |
|---|---|---|
| Price | The headline price is easier to defend, because the buyer is not funding all of it at once | Part of that price is now a promise rather than money |
| Buyer pool | Widens it, particularly to managers, employees and family who can run it but cannot fund it | The widened pool includes buyers a bank would not have funded alone |
| Timing of the money | An income stream after exit, usually with interest | The money arrives after the tax on it is generally payable |
| Control | Security over the business, if properly documented and registered | A standstill in the priority deed usually removes the right to act alone |
| Ranking | A registered, enforceable position | Second place, behind the senior lender, if the business fails |
| Their own debt | Nothing | Their financier still expects discharge at settlement, out of settlement money |
| Costs at settlement | Nothing | Agency commission is commonly calculated on the full price and payable at settlement |
| Alignment | Signals confidence in the business, which supports the price | Continuing exposure to how well someone else runs it |
General information only, and not financial, legal or tax advice. Commission terms are set by the agency agreement and vary, so read the agreement rather than relying on the general position described here. Tax timing is covered further down this page and is a matter for the seller's accountant.
The seller's own financier decides more than the seller does
This is the mechanism that kills more proposed carries than any other, and almost nothing published on the topic mentions it. A seller who still owes money against the business, its equipment or its premises usually has to have that debt discharged at settlement, and the discharge is funded out of the settlement money. If part of the price is being carried rather than paid, there may not be enough at settlement to achieve it. The seller's financier is not a party to your negotiation and is under no obligation to accommodate a structure that leaves it short.
The practical consequence is that a seller can agree to carry in good faith and then find they cannot. It is a question to ask before heads of agreement rather than after the contract is drawn, and it is answered by the seller's solicitor and their financier, not by you, not by the agent and not by your broker. A seller who does not know the answer has not asked yet.
Commission is usually payable on the whole price
Agency agreements commonly calculate commission on the full sale price and make it payable at settlement. Where part of that price is being carried, a seller can owe commission on money they have not yet received, out of the reduced amount they have. Terms vary and some agreements are negotiated differently, so the answer is in the agency agreement rather than in a general rule. It is worth a seller reading that clause before agreeing to carry anything, because it changes the cash floor in step one of the derivation above.
What happens if the buyer cannot pay?
The Act gives a secured party a real power to act, and then hedges it with notice obligations that the parties to a business sale are allowed to contract out of. That combination is the whole answer, and stating either half on its own gives a misleading picture. Seizure needs no prior notice. Disposal does. And on collateral that is not used predominantly for personal, domestic or household purposes, which is what a business sale is, the parties may agree in the security agreement that most of those protections do not apply at all.
Read those four rows together rather than separately. A seller reading only the seizure row concludes the carry is a strong instrument. A buyer reading only the ten business days row concludes there is a comfortable warning period. Both are reading half of it. The provisions that can be contracted out of include the right to seize itself, the notice of disposal, the statement of account, the retention provisions, redemption and reinstatement. Whether your agreement actually contracts out of any of them is a question about your document, not about the Act, and it is the first thing a solicitor should be asked to check.
Two further points change the picture materially. Where a receiver, or a receiver and manager, is appointed as a controller of the property, the Act's enforcement chapter does not apply to that property at all, and the Corporations Act governs instead. And the seller is enforcing from second place, behind the senior lender, which in practice means the seller's real remedy is often not seizure but negotiation, or waiting. Where a carry is repaid or refinanced out before that point is reached, our note on refinancing a vendor carry out covers the exit, and where the gap is filled another way, caveat lending against a vendor carry compares the two.
It is also worth being clear about which consumer protections do and do not reach a deal like this. Credit provided predominantly for business purposes sits outside the National Credit Act, and the regulator states plainly that the law gives the lowest level of protection to commercial loans, including loans to small businesses, and that lenders providing only commercial loans need not hold a credit licence or belong to the external dispute resolution scheme. That is not the same as no protection. Unfair contract term protections reach standard form small business contracts, where a small business is one employing fewer than one hundred people or with turnover under ten million dollars, and unfair terms became illegal from 9 November 2023. A vendor carry drafted on a seller's standard form is capable of falling inside that regime, which is another reason for both sides to take separate advice.
None of this is legal advice, and the enforcement position in any particular deal turns on documents this page has not seen. What it is for is to tell you which questions are worth asking before the documents are signed, because every one of these outcomes is settled at the drafting stage and none of them is settled at the default stage.
What is the difference between vendor finance and an earn-out?
A vendor carry is a loan of a fixed amount payable because time passes, and an earn-out is part of the price payable only if the business performs. That is the dividing line, and the market uses the words interchangeably in a way that causes real problems at contract and again at tax time. A seller note is a carry evidenced by a note. Deferred consideration is unpaid price payable on a date. Getting the label wrong changes the security, the accounting, the lender's treatment and the seller's tax.
| Test | Vendor carry | Seller note | Earn-out | Deferred consideration |
|---|---|---|---|---|
| Is the amount fixed when you sign | Yes | Yes | No, it depends on later performance | Yes, where the date is the only variable |
| What makes it payable | Time passing under the loan terms | Time passing under the note | The business meeting agreed measures | The agreed date arriving |
| Is it a loan | Yes | Yes, evidenced by a note | No, it is part of the price | No, it is unpaid price |
| Does the seller usually take security | Often, by registration or mortgage | Often | Rarely | Sometimes |
| Does the senior lender treat it as debt | Yes | Yes | Usually not until it crystallises | Usually yes |
| Seller's capital gains tax position | Proceeds at the time of the sale | Proceeds at the time of the sale | Look-through treatment may apply where all nine conditions are met | Turns on whether the right is reasonably ascertainable |
| What the buyer is really buying | Time to pay | Time to pay | Alignment on future performance | Timing of the payment |
Tax rows reflect the Australian Taxation Office, Guide to capital gains tax 2026, last updated 30 May 2026, read 2 September 2026. General information only, not tax advice; confirm your own position with your accountant.
Scenario: deferring part of the price against future performance
A buyer is uncomfortable paying the full price for a business whose recent trading has been carried by one large customer. The buyer proposes holding back part of the price and paying it if the business hits agreed figures over the following two years. That is an earn-out, not a vendor carry, and the difference is not cosmetic. There is no loan, so there is usually no interest and often no security. The senior lender will typically not count it as debt until it crystallises. The seller's tax position changes, because look-through treatment may be available where the right meets every one of the Australian Taxation Office's conditions and is not available where it does not. And the dispute risk moves from repayment to measurement: what counts as revenue, who controls the cost base, and what happens if the buyer changes the business. Where a seller stays involved through the transition rather than exiting, our note on partial sale and succession is the closer fit.The practical test we use is to ask what the payment is contingent on. If it is contingent only on the calendar, it is debt and it needs loan documents, a priority position and a repayment schedule. If it is contingent on performance, it is price and it needs a measurement clause, a definition of the metric and a mechanism for disputes. A document that mixes the two, which is more common than it should be, produces an instrument the lender cannot classify and the accountant cannot report. The Board of Taxation's review of deferred consideration arrangements is useful background on how varied these structures are in practice.
When does the seller pay tax on a vendor carry?
Earlier than the money arrives, in the ordinary case. A capital gains tax event happens when the business is sold, not when the last instalment is paid, so a seller who carries part of the price is generally taxed on proceeds that are still outstanding. That timing mismatch is one of the strongest reasons a seller resists carrying a large share of the price, and it is worth a buyer understanding before assuming a seller is being difficult.
Where the deferred amount is contingent on performance rather than fixed, a different regime may apply. Look-through treatment for an earnout right is available only where all nine of the Australian Taxation Office's conditions are met, including that the right was created on or after the stated date, that the benefits are contingent on the economic performance of the asset or business, that the parties dealt at arm's length, and that all the benefits are provided within five years after the end of the income year in which the capital gains tax event happened. Where the conditions are not all met, the contractual rights are treated as separate assets, which is a materially different outcome.
The timing under look-through treatment is worth stating carefully, because it reads two ways on a quick pass. The Australian Taxation Office's own worked example puts the gain in the year of the capital gains tax event and increases the capital proceeds of that year as each later benefit is received, producing a revised gain for the original year. Its amendments guidance is consistent with that: a taxpayer may need to seek an amendment to the net capital gain of an earlier income year. So the safe way to hold it is that the gain sits in the year of the sale and is revised as benefits arrive, not that it is simply assessed when the money is received. Your accountant, not this page, should confirm which applies to your transaction.
Two other taxes sit alongside. Goods and services tax may not apply where the sale qualifies as a going concern, which has three conditions that must all be met and is defined separately again, and which is covered in our note on going concern explained and our going concern glossary entry. Transfer duty on business assets was abolished in New South Wales, but duty still applies where the transaction includes land or an interest in land, and other states take their own positions, which are not covered here. Where the deal includes freehold, our freehold going concern guide is the next step.
Is a vendor carry a good idea?
It depends on which side of it you are, and on one question each. For the buyer: is the carry bridging a gap your lender has already agreed can exist, or is it papering over a contribution you do not have? For the seller: does what lands at settlement still clear the cash you actually need? Almost every good outcome sits on the first answer, and almost every bad one sits on the second.
| Party | Usually a good idea when | Usually a bad idea when |
|---|---|---|
| Buyer | The lender has approved the total debt including the carry, the schedule is fixed, the ranking is documented, and the carry closes a defined gap rather than an unknown one | It is being used to replace a contribution you do not have, or agreed after the finance condition has already been satisfied |
| Buyer, on price | The seller carrying signals they believe the trading figures, which is information you did not have before | The carry is the reason you accepted a price the earnings do not support |
| Seller | The cash floor at settlement is met, the buyer can run the business, and the security and ranking are documented before the contract goes unconditional | The money is needed now, the tax on the whole price falls due first, or their own financier still has to be paid out at settlement |
| Seller, on the buyer | Selling to a manager, an employee or family who can operate it, which is the setting the structure suits best | The carry is what makes an otherwise unfundable buyer look fundable |
| Both | Each side has taken separate legal advice and the standstill was discussed before it was drafted | The parties trust each other enough to skip the documents, which is when the failures cluster |
General information only, and not financial or legal advice, and not a recommendation for or against a vendor carry in any particular transaction. Whether it suits your deal depends on your circumstances, the trading figures and lender policy at the time.
One thing worth weighing when you read anyone else's answer to this question, including ours. Almost every published verdict on whether vendor finance is a good idea is written by a party with something to sell: the loan, the listing, the legal work or the advisory engagement. That does not make any of them wrong, but it does mean the enthusiasm and the caution are both partly commercial. Switchboard broker acquisition finance, so our interest is disclosed too. What we can say without a conflict is narrower and more useful: the deals we see fail do not fail because a carry was a bad idea in principle. They fail on a registration, a ranking or a date.
What goes wrong with vendor finance deals?
The failures cluster in documentation and sequencing, not in the commercial terms. The professional indemnity insurer for Victorian legal practices publishes a practice risk guide for business sale and purchase matters, and its named failure points read like a list of the things that go wrong on carries specifically: property in the chattels passing before the last payment is made, retention of title interests left unregistered, security documents not prepared, followed up or registered, general security documents not registered within time, and a first mortgage whose existence or value was never discovered.
That is claims experience from lawyers' files, and it is Victoria based, so it is not a national practice survey. It is still the most useful published account we have found of how these transactions fail, and it points in the same direction as everything above: the carry does not come apart over the interest rate, it comes apart over a registration, a ranking or a date.
| Decision point | A carry that holds up | A carry that comes apart |
|---|---|---|
| When the lender is told | Raised with the senior lender before the finance condition is satisfied | Disclosed after the contract is already unconditional |
| How the loan is documented | A term loan with a written repayment schedule | Callable on demand, with nothing restraining enforcement |
| When ranking is agreed | Priority deed agreed in principle before the contract goes unconditional | Ranking left to whoever registers first, or argued after settlement |
| How security is registered | Registered promptly against the correct grantor identifier | Registered late, or against the wrong entity |
| What the carry is treated as | Counted as debt, with total borrowings tested against trading figures | Assumed to count as the buyer's contribution |
| What the document actually is | Clearly a loan, or clearly an earn-out, and not both | Labelled a carry when the payment is performance contingent |
| Which figures it is tested against | The trading figures | The projections |
| Who advised the seller | Advised separately, so the standstill is no surprise | Signed without either side taking separate legal advice |
| The seller's own debt | Discharge confirmed with the seller's financier before heads of agreement | Discovered at settlement, when there is not enough money to discharge it |
From our broking, indicative
In practice the slow part of a vendor carry is not the negotiation with the seller, it is the senior lender's review of a carry sitting behind its own facility, and that is measured in weeks rather than days. It is also time to a decision, not time to an approval, and the two are not the same thing. Where this commonly lands is that the file goes back and forth over ranking, not over price. These are the reasons we see a carry knocked back by the senior lender:
- The carry is not disclosed until after the finance condition has already been satisfied
- The carry is documented as a demand loan, with nothing restraining the seller from calling it
- The security interest is registered against the wrong grantor identifier
- The seller refuses to sign a priority deed once the senior lender asks for one
- The carry pushes total debt beyond what the trading figures will service
- The buyer's deposit turns out to have been borrowed rather than contributed
And these are the reasons we see a carry collapse on the seller's side rather than the lender's, which buyers are usually not expecting:
- The seller's own financier will not release its security unless it is paid out in full at settlement
- The seller's tax on the whole price falls due before the carried instalments arrive
- Agency commission is payable at settlement on a price the seller has not fully received
- The seller's solicitor sees the standstill for the first time and advises against signing it
Indicative only, drawn from acquisition files we have placed, current as at the review date of this page. It is not a quote, not an offer, and not a statement that any particular carry will be consented to or that any timeframe will be met. No rate, proportion or turnaround figure is published here, for the reason set out earlier on this page. Actual terms and timing depend on lender policy, on the agency agreement, and on your circumstances at the time of application. General information only, and not financial advice.
The pattern underneath all of it is that a vendor carry is the part of a transaction with the fewest professional eyes on it. The bank's facility is documented by the bank's lawyers. The sale is documented by the sale lawyers. The carry is very often drafted last, by whoever is left, on the assumption that the parties trust each other. They usually do. That is not the problem. The problem is that trust does not fix a registration against the wrong grantor. Our note on a carry-back sale and our piece on goodwill in business purchase finance both show the same failure modes from different angles, and the legality question that buyers most often raise is answered in our note on whether vendor finance is legal.
Can you use vendor finance to buy from family, or from your employer?
Yes, and it is the setting vendor finance suits best, because the seller wants the business to continue in hands they trust and the buyer usually has the operating knowledge without the capital. It is also the setting where the paperwork is thinnest, for exactly the same reason. Most people in this position never search the words vendor finance at all. They search for how to buy the business they work for, or how to take over the family business, and the answer they need is this one.
The finance side is assessed no differently. The senior lender still requires its own debt to rank first, still counts the carry as debt rather than contribution, still tests the trading figures, and still wants the arrangement disclosed while the application is live. Being the incumbent manager helps the credit story, because the handover risk that worries a lender in an arm's length purchase is largely absent, but it does not change the structure.
What does change is the risk profile, and it moves in an uncomfortable direction. Parties who know and trust each other are the parties most likely to skip the loan document, skip the priority deed, skip the registration and skip separate legal advice, on the reasoning that none of it will be needed. Every failure mode in the section above becomes more likely, not less, when the seller is a parent or a long-time employer. The standstill conversation is also harder, because a seller who has known you for fifteen years reads a document restraining them from acting against you as a statement about trust rather than as a bank's standard requirement.
Two further points are worth putting to your accountant early. Where the parties are related, whether the transaction is at arm's length can matter to the tax treatment, and it is one of the conditions attached to look-through treatment described in the tax section. And where the seller is not exiting cleanly but staying involved through a handover or retaining a share, that is a different structure again, covered in our note on partial sale and succession.
The practical advice is the least welcome kind: document it as though you did not know each other, precisely because you do. A loan agreement, a registered security, an agreed ranking and separate legal advice on both sides cost the same in a family sale as in an arm's length one, and they are the only things that will still be legible if the relationship changes or if either party dies while the carry is outstanding.
What has to be ready before settlement?
Every document that gives the carry effect has to be signed, and every registration has to be capable of being made on the day. A carry is one of the few parts of a business purchase where the paperwork commonly runs behind the settlement date, and the gap is not harmless: an unsigned priority deed on settlement morning is the reason a lender withholds funding, and an unregistered security interest is the reason a seller discovers months later that they rank behind someone they had never heard of.
| Item | Who holds it up | Why it cannot wait until after settlement |
|---|---|---|
| Vendor finance loan agreement executed | Both solicitors | The security and the guarantee have nothing to attach to without it |
| Priority deed signed by all three parties | Senior lender, seller and buyer | The lender's own funding is usually conditional on it, so settlement does not happen without it |
| Security registration ready to lodge | The seller's solicitor | Registration windows are short and run from attachment or possession, not from settlement |
| Grantor identifier confirmed | Both solicitors | A registration against the wrong entity is ineffective and may not be fixable later |
| Personal guarantee reviewed and signed | You, with your own solicitor | Advice on a guarantee after signing is a post mortem, not advice |
| Seller's existing security discharged or discharge arranged | The seller's financier | If the settlement money will not cover the payout, settlement fails on the day |
| Lender's conditions precedent satisfied | Your broker and the lender | Unsatisfied conditions mean funds are not released, whatever the contract says |
| Settlement statement reconciles to the carry | Both solicitors | The carried principal in the loan agreement has to match what is actually left unpaid |
| First repayment date diarised | You | A missed first payment on a carry is an event of default in most documents |
A practical checklist, not legal advice, and not a complete list of settlement requirements for any particular transaction. Your solicitor's settlement checklist governs, and registration timing in particular should be confirmed against the security agreement.
The item people most often leave to the last week is the priority deed, because it needs three parties to agree and only one of them is in a hurry. If nothing else on this page changes how you run your transaction, start that document early.
What should you ask next, and who answers it?
Most of the questions this page raises are not broker questions, and asking the wrong professional is how weeks get lost. The finance questions have finance answers, the ranking and drafting questions are legal ones, the timing of tax is an accountant's, and two of the most important questions can only be answered by the other side of the table.
| The question | Who answers it | When to ask |
|---|---|---|
| What total debt will the trading figures support | Your broker, with the lender | Before you negotiate a price, not after |
| Will this lender consent to a carry at all | Your broker, with the lender | While the finance application is live |
| Can the seller carry, given their own debt | The seller, with their solicitor and their financier | Before heads of agreement |
| What does the agency agreement say about commission | The seller, reading their own agreement | Before the seller agrees to carry anything |
| Where does the carry rank, and what does the standstill stop | Your solicitor, against the actual deed | Before the contract goes unconditional |
| Is this a carry or is it an earn-out | Your solicitor and your accountant together | Before the document is drafted, not after |
| What does the personal guarantee actually expose | Your solicitor | Before you sign it, never after |
| When is the registration deadline for this security | Your solicitor, with the security agreement in front of them | Immediately, because the window is short |
| When does tax fall due on the carried amount | The seller's accountant, and yours on the buy side | Before the split between price and carry is fixed |
| Who pays for the priority deed | Negotiated between the solicitors, informed by the facility terms | When the carry is first raised with the lender |
General information only, and not financial, legal or tax advice. This table allocates questions to the right adviser; it does not answer them. Your own circumstances, contract and security documents decide the answers.
If you take one thing from this page into your next conversation, make it the first row. Almost every difficult situation described above starts with a price agreed before anyone established what the business would actually support.
Is this the same as vendor finance on a house?
No. What is described on this page is a commercial transaction between two businesses: a seller of a trading business carrying part of the sale price, secured and documented, sitting behind a commercial lender. Consumer property arrangements that also travel under the name vendor finance, such as instalment contracts and rent to buy arrangements over a home, involve a consumer buying a place to live and are governed under a different regulatory frame entirely. Nothing on this page is about them, and nothing here should be read across to them.
The phrase is also used in trade and supply for post-shipment credit, where a supplier of goods extends payment terms to a customer. That is supplier credit, not the sale of a business, and the security, the documents and the tax treatment are all different. The full comparison is in the disambiguation table near the top of this page, and if you want the plain definition rather than the acquisition mechanics, the vendor finance glossary entry and our vendor finance guide are the right pages.
A vendor carry is not a way of needing less money. It is a way of changing who is owed and when, and everything difficult about it follows from the fact that the seller becomes a creditor of the deal you are buying. The bank funding the balance will expect to rank first, will expect the carry to be disclosed while the application is live, and will count the carry's repayments when it tests whether the business services its debt. The published figures on how much a seller will carry are not sourced, so treat the proportion as a residual your deal arrives at rather than a number you look up. And the failures are documentary: a registration against the wrong entity, a demand loan with nothing restraining it, an earn-out labelled as a carry, a priority deed nobody warned the seller about, and a seller's own financier nobody asked.
Key takeaway: establish what the business will support before you agree a price, raise the carry with your lender before the finance condition is satisfied, get the ranking documented, and have both the loan and the guarantee reviewed by a solicitor before anything goes unconditional.Frequently Asked Questions
The seller agrees to leave part of the purchase price in the deal and be paid over an agreed period, usually with interest and usually with security. It is a loan from the seller to the buyer, so it does not reduce the total you owe, it adds a second creditor alongside the lender funding the balance. That lender will normally require its own debt to rank first and will want the arrangement disclosed while the application is live. Our vendor finance guide covers the instrument itself.
In practice yes, because a lender funding the balance of the purchase treats an undisclosed carry as a material change to the transaction it approved, and loan documents usually require disclosure of other borrowing and of security granted over the assets. The consent is normally given with conditions about ranking rather than as a flat yes or no. Raise it while the finance application is running, not after the finance condition has been satisfied. The wider application is covered in our guide to getting a loan to buy a business.
Usually no. A vendor carry is debt, not contribution, so it does not lower the amount you owe and its repayments are counted when the lender tests serviceability. Some lenders will consider a deeply subordinated carry as part of the equity contribution where it cannot be called while the senior debt is outstanding, but that is a policy question to test rather than assume. Our note on the vendor finance deposit gap follows the situation through.
Yes. A seller carrying part of the price of a trading business is an ordinary lawful commercial arrangement, and no Australian state or territory prohibits it. The doubt usually comes across from consumer property arrangements that share the name, such as instalment contracts and rent to buy over a home, where the rules are tighter and regulators have intervened.
Credit provided predominantly for business purposes sits outside the National Credit Act, and the regulator's position is that lenders providing only commercial loans need not hold a credit licence. Lawful is not the same as safe: the failures on business carries are documentary, not legal.
It depends on which side of the deal you are on. For a buyer it is usually a good idea when the lender has already approved the total debt including the carry, the repayment schedule is fixed and the ranking is documented, and usually a bad idea when it is being used to replace a contribution you do not have. For a seller it is usually a good idea when what lands at settlement still clears the cash they actually need, and a bad idea when the money is needed now, when tax on the whole price falls due first, or when their own financier must be paid out at settlement.
Weigh any published verdict against who is publishing it, because most are written by a party selling the loan, the listing, the legal work or the advice. The full comparison is in is a vendor carry a good idea.
A statement of what is owed, when it falls due, what counts as default, what the seller can do about it, and where the seller ranks against the bank. Around that spine sit the interest terms, the security schedule, subordination and standstill wording, set-off against warranty claims, any restraint of trade, and usually a personal guarantee.
It commonly sits as a standalone loan agreement or deed rather than as payment terms inside the sale of business contract, because the security and the priority deed need something that survives settlement to attach to. Do not work from a downloaded template: a security schedule that does not match how the security was actually registered is worse than no document. The clause by clause breakdown is on this page.
There is no published deposit requirement to point to, in Queensland or anywhere else in Australia, and no state rule setting one. What decides it is lender policy, because a vendor carry is counted as debt rather than as your contribution, so a structure with no contribution at all reads to a senior lender as a business funded entirely by borrowings.
A seller can carry the whole price where no bank is involved, which removes the lender's objection because there is no lender, but it also removes any independent test of whether the trading figures support the debt. Note that most Queensland results on this question are about property rather than about buying a business.
Not through a mainstream acquisition facility, because the carry is counted as debt rather than as your contribution, so a structure with no contribution reads to the senior lender as a business funded entirely by borrowings. A seller can in principle carry the whole price with no bank involved at all, which removes the lender's objection because there is no lender, but it also removes the discipline of an independent party testing whether the trading figures support the debt, and the seller takes the entire risk.
Where a buyer is short rather than starting from nothing, our note on the vendor finance deposit gap follows that situation through.
There is no reliable published answer. Ranges circulate widely and disagree with each other, and every one we could trace is published by a party selling the loan, the listing, the legal work or the advice, with none tracing to a regulator, an industry body or a published lender policy. Switchboard publishes no figure of its own here for the same reason. What decides it in a real deal is the seller's need for cash at settlement set against the total debt the trading figures will service, worked through step by step in how the proportion is derived, and covered on our vendor finance page.
Often not to the extent they expect, and this is the reason a lot of proposed carries quietly die. A seller who still owes money against the business or its premises usually has to have that debt discharged at settlement out of the settlement money. If part of the price is being carried rather than paid, there may not be enough at settlement to achieve the discharge, and the seller's own financier is not obliged to accommodate the arrangement.
Ask the question before heads of agreement, not after, because it is answered by the seller's solicitor and their financier rather than by you.
The risks are documentary rather than commercial. A carry that is callable on demand, registered late, registered against the wrong entity, disclosed to the lender after the contract is unconditional, or labelled a carry when the payment is actually performance contingent, are the situations that cause trouble. A carry documented as a term loan with an agreed ranking and a schedule is a well understood structure. Have both the loan and any personal guarantee reviewed by a solicitor before signing, and see whether vendor finance is legal for the question buyers ask most.
Most commonly by registration on the Personal Property Securities Register over the business assets, by a mortgage on the land title where the deal includes premises, and by a personal guarantee from the buyer. Those are three separate mechanisms and one registration does not cover all of them, because land is excluded from the Act's definition of personal property. Which security is appropriate where is covered in our note on security in a business purchase.
A deed of priority is the agreement that fixes the order in which two secured creditors are paid, and it usually also restricts when the second ranking creditor can demand repayment or enforce. The bank wants one because registration order alone leaves its position dependent on the sequence of registrations and on interests it did not anticipate. The Personal Property Securities Act allows a secured party to subordinate its interest to any other interest in the collateral, and allows a third party for whose benefit the subordination is intended to enforce it. The register itself is explained in our PPSR glossary entry.
There is no default rule, so it is a negotiated term and it is usually negotiated late, which is why it surprises people. Three sets of lawyers can end up billing on the one document: the senior lender's, the seller's and the buyer's, and lenders commonly pass their own legal costs on to the borrower under the facility documents.
Settle who pays before the deed is drafted rather than after it has been marked up twice. The moment to raise it is the same moment you raise the carry with your lender.
No. A vendor carry is a loan of a fixed amount payable because time passes, so it carries interest, usually carries security and is treated as debt. An earn-out is part of the purchase price payable only if the business meets agreed performance measures, so it usually has no interest, often no security, and a different tax treatment for the seller. Mixing the two in one document produces an instrument the lender cannot classify. Where a seller stays involved rather than exiting, see partial sale and succession.
Generally in the year the business is sold rather than as instalments arrive, because the capital gains tax event happens on the sale. Where the deferred amount is performance contingent, look-through treatment may apply if all nine of the Australian Taxation Office's conditions are met, in which case the gain still sits in the year of the event and is revised as benefits are received, with an amendment sought for that earlier year. Goods and services tax and duty are separate questions, and our note on going concern covers the first. Speak to your accountant about your own position.
It is one of the most common settings for a carry, because the owner wants the business to continue in hands they trust and the buyer usually has the operating knowledge but not the capital. The finance is assessed the same way as any other acquisition: the senior lender still wants to rank first, still counts the carry as debt, and still tests the trading figures.
What changes is the documentation risk, because parties who know and trust each other are the parties most likely to skip the loan document, the priority deed and separate legal advice. Where the seller stays involved through a handover, see partial sale and succession.
Yes, and it is one of the main reasons a carry gets used. A vendor carry is secured against the business being bought rather than against a house, most commonly by registration on the Personal Property Securities Register over the business assets, so a buyer who does not own residential property is not automatically shut out.
What does not change is that the senior lender still counts the carry as debt rather than as your contribution, still tests whether the trading figures service the total, and will usually want a personal guarantee. Not owning property tends to affect what security is available and what the lender will advance, rather than whether a carry is possible at all. Our note on security in a business purchase covers the alternatives.
Read the loan agreement and the priority deed before you do anything else, because between them they decide what the seller can actually do. A missed payment is an event of default in most carries, and acceleration clauses can make the whole balance payable rather than just the arrears.
In practice the seller is enforcing from second place behind the senior lender and is usually restrained by a standstill from acting while the senior facility is on foot, which is why negotiation or a rescheduled term is a more realistic outcome than seizure. Tell your broker and your solicitor early, because a default under the carry can also cross-default the senior facility in some documents.
Often yes, but it depends on a prepayment clause that many carries do not contain, so check the loan agreement before assuming it. Refinancing a carry out means a lender advancing against the business to repay the seller, which usually requires trading history under your ownership rather than the seller's, so it is more commonly available a year or two after settlement than immediately.
The priority deed may also restrict the order in which debts can be repaid while the senior facility is on foot. Our note on refinancing a vendor carry out covers the exit in more detail.
The seller is enforcing from second place, behind the senior lender, which usually makes negotiation or waiting a more realistic remedy than seizure. The Act lets a secured party seize collateral by any method permitted by law on default, with no prior notice required to seize, while a notice of disposal must specify a day at least ten business days after it is given. On business collateral the parties may contract out of many of those provisions, and a different regime applies entirely where a receiver is appointed. Whether a carry can be refinanced out first is covered in our note on refinancing a vendor carry.
FBAA Accredited
