Vendor Finance for Business Sales
Vendor finance: the last slice that gets the deal done.
The bank funds most of a business purchase. A vendor carry covers the last slice you are short, so the deal completes. Normal, legal, and how most motels, parks and pubs change hands.
Business-purpose seller finance, structured so the bank will sit in front of it.
Which side are you on?
You have found the business and you are short the final piece. Can a carry close it, and will the bank allow it?
A buyer has asked you to leave money in. How do you protect yourself and still get paid in full?
Is it legal? Yes.
Two different things share the name. You are doing the legal one.
"Banned in Victoria" is the home-buyer product, not a business sale. Confirm your own deal with your solicitor.
How the money stacks up.
Three pieces, stacked to the full price. The carry is the last slice.
The bank lends against the valuation, not the price, so it stops near 60 to 70 percent. Figures illustrative.
The deal hangs on the bank's yes.
The seller sitting behind the bank is not automatic. Handling that is the job.
A bank says yes far more readily with a complete file: consent request, valuation, the proposed deed of priority, servicing evidence, and a credible exit. In Victoria, registering a second mortgage needs title nomination from the first mortgagee, who usually wants the deed settled first. Packaging this is most of the job, and the part we do.
How it is secured.
Documents are your solicitor's work. We arrange the bank facility and structure the carry.
If the buyer cannot pay.
You rank second, paid after the bank. Four things protect you. Tap each.
The carry does not last forever.
Refinanced out in two to five years, once the business has a track record.
Pure timing gap instead? That is private lending or a caveat loan, not the carry.
Why motels, parks & pubs lean on it.
Three reasons it is normal here. Tap each.
Lenders advance against a conservative going-concern valuation that can sit well below the price, so the slice you self-fund is larger.
Is a carry even right?
Sometimes a carry is not the fix. Quick check.
A carry sits behind the senior commercial property loan or business loan.
Questions buyers and sellers ask.
Yes. In a business sale it is a normal, legal arrangement between commercial parties, documented as a business-purpose loan with security registered. It is not the residential rent-to-buy product some states restricted.
The Victorian restrictions cover residential terms contracts and rent-to-buy for homes, not a business-purpose carry on a going-concern motel, park or pub. Confirm your own deal with your solicitor.
Commonly 10 to 25 percent of the price, behind the bank, often interest-only, cleared over two to five years. A bigger deposit usually means a smaller carry.
It can, but not automatically. It needs the bank's written consent and a deed of priority, and a clean, complete file is what gets that consent.
The rate is negotiated and set in the loan agreement. It usually sits above a standard bank rate to reflect the second-ranking risk, and is often interest-only early to ease your first year or two.
The seller enforces their security but, ranking second, recovers only after the bank. A deposit, registered security and a deed of priority are the protections.
Usually by refinance, once the business has traded under new ownership long enough for a lender to assess it.
Yes, and accommodation is where it is most common. See motel, caravan park and pub and hotel finance.
Not sure if your deal stacks up?
Tell us the business, the price, and what the bank has said. We will tell you straight.
By Nick Lim, founder of Switchboard Finance. Credit Representative 576702 under ACL 384704 (Finsure). General information, not credit, legal or tax advice.