Refinancing a Vendor Carry Out: The Exit Both Sides Plan
Refinancing a Vendor Carry Out in FY27 | Switchboard Finance
Accommodation Finance
Vendor Finance · Refinance Exit · Going Concern
Refinancing a Vendor Carry Out: The Exit Both Sides Plan
A vendor carry is not free money that quietly disappears once the deal settles. It is a second-ranking loan with a built-in ending, and that ending, the refinance that clears the seller, is priced from day one by both sides. Here is how the carry is paid out, and what trading record each stage of the exit needs.
Quick Answer
A vendor carry is designed to be refinanced out, not simply repaid: once the business has traded under new ownership long enough to show a record, a new lender clears the seller. That exit is priced by both sides from day one, and secured behind the senior lender by a deed of priority.
A vendor carry is priced to be refinanced out
The most common misconception about a vendor carry is that settlement is the finish line. It is not. A carry is a vendor finance loan with a built-in ending, and the exit is priced from day one by both sides of the deal.
Structurally, the seller leaves a minority slice of the price in the business and is repaid over time, ranked behind the bank as a second-ranking carry. Because it sits behind the senior facility, it usually runs interest-only during the carry, typically, with the principal cleared later. That later moment is the whole point: a carry is temporary by design, with a refinance-out window of two to five years, typically, written into the plan before anyone signs.
The carries I have arranged that clear cleanly all turn on the same thing, and it is not the size of the slice. It is whether both sides understood, on day one, how the going concern would be refinanced to pay the seller out. Get that right and the carry does its job quietly. Get it wrong and the seller is still waiting years later, wondering why the exit never came.
How a vendor carry is actually paid out
A vendor finance carry is paid out by refinance in the large majority of deals, not by the buyer gradually chipping away at the seller. The buyer runs the business under new ownership, builds a record a lender can actually read, and a new senior facility then refinances the whole position and clears the seller in a single step. That is why the exit is a refinance question, not a repayment schedule.
For that to work, the security has to be clean from the start. The carry is usually held as a second mortgage over the property plus a registration on the Personal Property Securities Register over the business assets, and the senior lender's agreement to rank ahead is captured in a deed of priority. That single instrument, which sits alongside the vendor's consent and priority arrangements, fixes who gets paid first and lets the eventual refinance discharge the carry without a fight.
The variable that actually unlocks the exit is trading record under new ownership. A refinancing lender is not buying the seller's history; it is assessing what the business has done since the buyer took over, the same trading record a motel lender wants to see on any purchase. In practice, that means the refinance is gated by time and by clean figures, which is exactly why the two sides should map the exit strategy, and the senior commercial property loan that will carry it, before contracts are signed.
The refinance exit by trading record
Because the exit turns on record, not appetite, the realistic refinance depends on how far the business has traded under its new owner. Here is the same carry read at three stages of trading maturity, the map both sides should hold from settlement. Select where the trade sits to see what the exit looks like at each stage.
Where does the trade sit under new ownership?
Hold the carry, do not force the exit
In the first twelve months under new ownership there is little or no lodged record for a refinancing lender to assess, so a full refinance-out on the trade alone is usually not yet available. This is not a failure, it is the carry doing precisely what it was built for, holding the last slice while the record forms. If genuine timing pressure appears, that is a job for private lending or a caveat loan over a short, defined window, not a reason to force an exit the figures cannot yet support.
Exit not yet openA partial or full refinance comes into range
Once the business has one full trading period lodged under new ownership, roughly the twelve to twenty-four month mark, a lender can begin to read the going concern on its own numbers. A partial or full refinance starts to come into range, depending on how the figures present: occupancy and room-rate history that holds up, and an adjusted net profit a lender can verify. If the first year dipped for a refurbishment or a soft season, the record reads thin and the refinance waits for the next set.
Exit openingThe designed exit opens, the vendor is paid out
With two to three years of trading under new ownership, the going concern can be assessed on its own record and the designed exit finally opens. A senior lender refinances the full position, the vendor is paid out, and the deed of priority is discharged. This is the tier the whole structure was pointed at from settlement, and it is why a sensible carry is written with a refinance-out window long enough to reach it.
Exit fully openWhat the buyer and the vendor each plan for
Because the exit is shared, the smartest deals have both sides planning for it from opposite ends. The buyer's job is to protect the record the refinance will be judged on: run the business cleanly, resist stripping the trade with aggressive add-backs a lender will not accept, and keep the figures in a shape a credit desk can read. With FY27 now under way, a buyer who settled around the start of the financial year is building the first full-year record the exit will be measured against, which makes bookkeeping discipline a financing decision, not just an accounting one.
The vendor's job is to price the wait and protect the position. A second-ranking carry is paid interest while the buyer trades, and the vendor's security, the deposit, the registered second mortgage and the deed of priority, is what stands behind the promise. In practice, the vendors who get paid on time are the ones who insisted on a complete file and a documented exit before they left money in, rather than trusting goodwill.
One distinction keeps deals clean: a carry is structural, not a timing tool. If the pressure is simply the gap between exchange and settlement, that belongs with private lending or a caveat loan, and a carry that needs rescuing before it ever trades usually points to a price problem, not a finance one. For an owner weighing a carry as one way to step back, it sits alongside the other routes in our guide to partial sale and succession and across the accommodation finance hub. How a senior lender reads a carry inside a larger deal is walked through in our note on a motel expansion stack.
A vendor carry is built to be refinanced out, not repaid in instalments. The seller leaves a minority slice in as a second-ranking carry, interest-only during the carry, and the plan from settlement is to clear it once the business has built a trading record under new ownership a lender can read. That is a two to five year window, typically, and it opens tier by tier: thin in year one, readable after a full lodged year, and fully bankable with two to three years of figures. The deed of priority is what lets the eventual refinance discharge the carry cleanly.
Key takeaway: price the refinance exit from day one, keep the trading record clean, and the carry clears itself when the record matures, not before.Frequently Asked Questions
A vendor finance carry is paid out by refinance in the large majority of deals, not by the buyer gradually repaying the seller. Once the business has traded under new ownership for long enough to show a clean record, a new senior facility refinances the position and clears the vendor in one step. You can see the full structure in our guide to how vendor finance works.
The refinance-out window on a vendor carry is typically two to five years, indicative and varies by deal, because a lender needs to see the business trade under its new owner before it will refinance. A single clean full-year record can open a partial refinance, while two to three years of figures gives a lender the most to work with. The clock is really about a readable going concern, not a fixed date.
If a vendor carry cannot be refinanced within its term, the usual paths are to extend the carry by agreement, sell the business, or refinance against independent security rather than the trade alone. Short, defined timing pressure is a different problem, better matched to private lending or a caveat loan than to the carry itself. A carry that repeatedly cannot be exited is often a sign the original price outran the going-concern valuation.
A vendor carry behind a senior loan does need the senior lender's written consent, because the carry ranks second and that ranking has to be agreed rather than assumed. Consent is captured in a deed of priority that fixes who recovers first, and the same document is what lets a later refinance discharge the carry cleanly. You can see how consent and priority are documented on our deed of consent explainer.
A vendor carry is usually secured by a second mortgage over the property plus a PPSR registration over the business assets, so the two are related but not the same thing. The second mortgage is the security; the vendor carry is the loan that security sits behind. Both rank behind the senior lender's first mortgage, which is why the deed of priority matters.
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