Only rich people can just go and "buy a business" right? Nope! Vendor Finance is one popular option you have to help you finance some of your ideal business acquisition.
Imagine you're buying a car from a friend. Instead of getting a loan from the bank, your friend says, "Hey, just give me a down payment now, and you can pay me the rest over the next couple of years."
So, you make a deal to pay a bit every month until you've paid off the full amount. This way, you get the car now, and your friend gets a bit more money over time, including some extra for letting you pay over time.
Now, lets apply that simple idea to buying a business.
Vendor financing when buying a business is pretty much the same concept. Instead of getting a loan from a bank to buy a business, the current owner (the seller) lets you pay them directly over time.
You give them a portion of the money upfront (a down payment) and then pay the rest in instalments, usually with a bit of interest.
Advantages of Vendor Financing for the Buyer
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Easier Checkout: Just like an express lane in a store, seller financing can be quicker and smoother than waiting in line at a bank. You might not need all that paperwork and time banks ask for if you try to apply for a loan through your bank. (Reply to this email with “bank” if you need help finding a bank friendly to acquisitions and I can share some suggestions)
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Friendlier Terms: Imagine if you could negotiate how much pocket money you give and when? That's the beauty here. You and the seller can chat and come up with payment plans that work for both of you creating a win, win agreement. This is one of the reasons why it is so important to build a great relationship with the seller.
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Save Money: With seller financing, you might be able to skip some of the admin fees banks usually charge, so you keep more money in your pocket.
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More Choices: Think of it like being able to buy a toy even if it's not on the shelf at the big stores. Some businesses might not qualify for bank loans, but with seller financing, you can still buy them. This often applies to online businesses or businesses that don’t include a large amount of Real Estate as collateral.
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A Helping Hand: It's like having a friend guide you on how to play a new game. The seller, who knows the business inside-out, might offer advice or help during the transition, since they have a vested interest in seeing you succeed.
The best Vendor Financing terms, make the deal a win, win. How does that work? What is in it for the seller?
The advanges of Vendor Financing for the Seller
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Vendor Financing Helps Businesses Sell Faster:
Our surveys show that more than half of buyers like it when sellers offer financing. By offering this option, sellers attract more potential buyers and often sell their business faster. Plus with more interested buyers competing…
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No Standardised Process: Unlike banks, which have a set way of doing things, every seller might have their own style. This means the process isn't always predictable. A good broker or deal manager will be able to help with standardising the terms of the deal.
Vendor finance is a pretty cool way many folks in Australia get to own a business. But, guess what? It's not the only way. If you're eyeing a smaller business, priced under $100k, there are heaps of people who just buy them outright with cash.
For all the sellers out there: if you're happy with vendor financing, pop it into your ad! It will help widen your buyer pool so you can find the perfect buyer.
And if you're looking to buy, it's a good idea to chat early on about vendor finance with the seller or broker. Just a tip: maybe don’t put it front and centre in your first enquiry.
Wishing you all the best in your business buying adventures. And hey, if you ever need a bit of guidance or a second opinion on your deal, just give me a shout. Always here to help.