When buying a business you can ask for vendor finance
When buying a business you can ask for vendor finance
So you might ask, what is vendor finance?
Vendor finance is where the person selling the business is happy to lend the purchaser part or all of money need to buy it. If this concept is new to you, then you may well be thinking, why would the vendor of a business lend someone money to buy their business? This is a good question and is worth explaining further.
For example, if you were to buy a business for £180,000, and you are unable to get the whole purchase price together and on the assumption that you have say £80,000 of the purchase funds and you are unable, for whatever reason, to raise the £100,000 balance. In this situation you could ask the vendor of the business to take the £80,000 as a down payment on the purchase date, with the balance of the purchase price to be paid by instalments.
The period of the “vendor loan” will need to be agreed between you as the buyer of the business and the seller and the loan can be repaid out of the profits of the business. The vendor can insist on charging interest on the loan and it would up to you to agree on the rate charged with the vendor. The vendor might also request security for the loan, which might mean that it be secured on your home or other property you own, or alternatively, where you don’t own any property, on the business itself.
Benefits of “Vendor Finance”
One quite obvious benefit is that the transaction can complete, which keeps the vendor happy and you are able to buy a business that you would ordinarily not be able to afford.
If the vendor is willing to provide vendor finance this will be showing the would-be purchaser a level of confidence in the business.
Disadvantages of providing “Vendor finance”
The business might go bust during the vendor loan period, which would mean that the loan would not be able to be paid.
The vendor does not receive all the monies for the business upfront, however, at least a sale is made and where interest is charged on the loan, normally at a higher rate than a bank would pay, the vendor will receive a good return on the loan.
Advice for vendors
Make sure you receive a substantial payment up-front and I would recommend no less than one third of the selling price. This will qualifying your purchaser and you don’t want to sell your business to someone and then a few months down the track, find that they have messed things up and you had no money up-front.
Do take up some form of credit referencing on the purchaser to make sure that they have no bad credit history, thereby making the whole transaction a higher risk.
When buying a business you can ask for vendor finance - To learn more about this author, visit Russell Bowyer's Website.
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When you buy a business you don’t always have all the funds necessary to complete the purchase and in today’s economic climate, with banking finance being more difficult to come by, vendor finance might be the only way the business gets sold. Vendor finance might be the best option for you as a buyer, but also for the vendor in that this will make sure the deal happens.
So you might ask, what is vendor finance?
Vendor finance is where the person selling the business is happy to lend the purchaser part or all of money need to buy it. If this concept is new to you, then you may well be thinking, why would the vendor of a business lend someone money to buy their business? This is a good question and is worth explaining further.
For example, if you were to buy a business for £180,000, and you are unable to get the whole purchase price together and on the assumption that you have say £80,000 of the purchase funds and you are unable, for whatever reason, to raise the £100,000 balance. In this situation you could ask the vendor of the business to take the £80,000 as a down payment on the purchase date, with the balance of the purchase price to be paid by instalments.
The period of the “vendor loan” will need to be agreed between you as the buyer of the business and the seller and the loan can be repaid out of the profits of the business. The vendor can insist on charging interest on the loan and it would up to you to agree on the rate charged with the vendor. The vendor might also request security for the loan, which might mean that it be secured on your home or other property you own, or alternatively, where you don’t own any property, on the business itself.
Benefits of “Vendor Finance”
One quite obvious benefit is that the transaction can complete, which keeps the vendor happy and you are able to buy a business that you would ordinarily not be able to afford.
If the vendor is willing to provide vendor finance this will be showing the would-be purchaser a level of confidence in the business.
Disadvantages of providing “Vendor finance”
The business might go bust during the vendor loan period, which would mean that the loan would not be able to be paid.
The vendor does not receive all the monies for the business upfront, however, at least a sale is made and where interest is charged on the loan, normally at a higher rate than a bank would pay, the vendor will receive a good return on the loan.
Advice for vendors
Make sure you receive a substantial payment up-front and I would recommend no less than one third of the selling price. This will qualifying your purchaser and you don’t want to sell your business to someone and then a few months down the track, find that they have messed things up and you had no money up-front.
Do take up some form of credit referencing on the purchaser to make sure that they have no bad credit history, thereby making the whole transaction a higher risk.
When buying a business you can ask for vendor finance - To learn more about this author, visit Russell Bowyer's Website.
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