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27 May 2024

It Depends – What is vendor finance and why should I use it?

In this edition of It depends, lawyer Alfred Jackson talks about what vendor finance is and why you might use it.

In this edition of It depends, lawyer Alfred Jackson talks about what vendor finance is and why you might use it.

Video transcript

Hi, my name’s Alfred and I’m a solicitor in the private client team of Cooper Grace Ward. And in this edition of It depends, I’ll be talking about what is vendor finance and why should I use it? So, what is vendor finance?

What is vendor finance?

As the name indicates, it’s finance that’s provided by the vendor.

Why should I use vendor finance?

So, why might I use vendor finance? The first reason is, if the vendor is struggling to obtain finance, you can step in and provide, you know, a deferred purchase price arrangement to help get the deal across the line. However, goes without saying, if the purchaser is struggling to obtain finance, you might need to pause and wonder why the bank or someone else is unwilling to provide finance, and you should do your due diligence first. Another reason you might provide vendor finance is if you’ve got a key employee who you want to bring into the business. Often, employees won’t have the funds to stump up the cash, however, you want something to incentivise them to keep them involved in the business, and often giving them equity is a good way to do this. And if you do it on a deferred purchase price basis or with vendor finance, that can be a good solution. Another reason you might choose to use vendor finance is family business succession planning. You might choose to quite literally help a brother out. You can provide a family member what is effectively a loan, and then also what’s hopefully going to be an income producing asset in the underlying thing that’s being sold. Also, depending on your Will and your estate planning, you can also start thinking about whether or not on your death that loan is going to be passed to someone and whether another family member might, for example, get the receivable as an asset in the future. If you have any questions about transactions, including those with vendor finance, feel free to get in contact with me or any of the lawyers here at Cooper Grace Ward.

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This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please let us know.

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