What is Vendor Finance?

Vendor finance is also known as – Seller Finance or Growth Acquisition.

Vendor finance is a way of enabling a sale of a business to be completed easily and quickly as opposed to the traditional method of raising funds to finance the purchase. Funds are raised on the basis the business is a stable ship with good order books, profitable history and potential for growth. Basically, the assets of the company are the collateral for the borrowings.

Fact – Only 20% of business listed for sale ever sell.

The main reasons for this are

• inflated valuation by agents looking for listing fees – Only 5% of vendors achieve anything close to their first asking price.
• the business is not viable without the current owners;
• the owners decide not to sell when the risk of the business being asset-stripped is realised
• the business has had its day;
• and the most common reason, buyers not able to find the funds to make the purchase.

Fact – Vendor finance increases the percentage of business’ sold.

This is due to a number of factors, such as:

• the correct valuation for the business is calculated;
• the buyers can find growth potential in the business to keep the business profitable thereby safeguarding staff and protecting the goodwill and value of the business;
• the owner can keep a stake in the business;
• companies buying via Vendor Finance will want the business to succeed;
• the seller has more security.