Acquisition finance
Vendor finance: when the seller helps fund the sale of a business
Vendor finance (or seller finance) is when the seller of a business agrees to be paid part of the price after the sale completes. It can help a buyer who can’t raise the full price on day one, and keeps the seller invested in the business doing well. This guide explains the main forms it takes, what buyers and sellers need to agree, and the risks on each side.
This page is about selling and buying a business. “Vendor finance” can also mean finance that suppliers offer customers to buy equipment or products. For that, see Asset Finance.
Vendor finance is an agreement between buyer and seller. Wize Finance isn’t a party to it and doesn’t give legal or tax advice.
How vendor finance works
- At completion, the buyer pays part of the price, funded by their own money and any borrowing.
- The rest is deferred: the buyer agrees to pay it to the seller later, on agreed terms.
- The deferred amount may be fixed (a set sum paid over time) or variable (linked to how the business performs).
- The seller may charge interest on money owed to them, as they would on a loan.
- If the buyer also borrows from a lender, the lender and seller will usually need to agree who gets paid first if things go wrong. The seller’s deferred payment often ranks behind the lender.
Three ways a seller can be paid later
Deferred consideration, vendor loan notes and earn-outs compared
Deferred consideration
- What it is
- Part of a fixed price is paid after completion
- How it’s paid
- On agreed dates
- Fixed or variable?
- Fixed
- Main risk for the seller
- The buyer can’t pay later
- Main thing to agree
- The payment schedule and what happens if a payment is missed
Vendor loan note
- What it is
- A formal debt from the buyer to the seller for part of the price
- How it’s paid
- Like a loan, often with interest, on agreed terms
- Fixed or variable?
- Fixed
- Main risk for the seller
- The buyer can’t pay, and lenders may be paid first
- Main thing to agree
- Interest, ranking against other lenders, and security
Earn-out
- What it is
- Part of the price depends on how the business performs after the sale
- How it’s paid
- If and when agreed targets are met
- Fixed or variable?
- Variable
- Main risk for the seller
- Targets aren’t met, or are disputed
- Main thing to agree
- How targets are measured, and how much control the seller keeps
Why buyers and sellers agree to vendor finance
For the buyer:
- Less to raise at completion
- A gap between the price and what lenders will fund can sometimes be bridged
- The seller stays invested in a smooth handover
- With an earn-out, part of the price is only paid if the business performs
For the seller:
- It can widen the pool of buyers, including management teams
- It may help agree a higher headline price
- It can support a gradual handover to people they know
- But the seller is paid later, and only if the buyer can pay
What to agree before you sign
Where vendor finance is common
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Management buyouts, where the team can’t raise the whole price at completion → Management Buyout Finance
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Owner retirements and family successions, where the seller is happy to be paid over time
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Smaller business sales, where bank borrowing doesn’t cover the full price
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Deals with uncertain future earnings, where an earn-out shares the risk
Funding the rest of the purchase
Vendor finance usually covers only part of the price.
The rest normally comes from the buyer’s own money and borrowing, and that’s where Wize Finance can help you explore the options.
More on structuring a purchase: Acquisition Finance
Vendor finance FAQs
What is vendor finance?
It’s when the seller of a business agrees to be paid part of the price after completion, so the buyer doesn’t have to raise it all at once.
Is vendor finance the same as seller financing?
Yes. Both describe a seller funding part of the purchase price by agreeing to be paid later.
What is a vendor loan note?
It’s a formal agreement for the buyer to repay part of the price to the seller over time, like a loan. It often carries interest and may rank behind other lenders.
What is an earn-out?
It’s a form of deferred payment where part of the price depends on how the business performs after the sale, measured against targets agreed in advance.
Is vendor finance risky for the seller?
It can be. The seller is paid later, and only if the buyer can pay, so the terms, security and ranking against other lenders matter. Sellers should take their own legal advice.
Can a lender and vendor finance be used together?
Often, yes. Many deals combine the buyer’s contribution, borrowing and a deferred payment to the seller. The lender and seller usually need to agree who gets paid first.
Does Wize Finance provide vendor finance?
No. Vendor finance is an agreement between buyer and seller. Wize Finance can help with the wider Acquisition Finance requirement.
Agreeing a deal with vendor finance?
Get advice early. Both buyer and seller need their own solicitor and accountant to agree terms that work.
More on funding a purchase: Acquisition Finance
If you’re buying, an enquiry to Wize Finance is about funding the part of the price the seller isn’t deferring. The vendor finance itself is agreed between you and the seller. You can enquire as an existing business, an individual or management team, or a new buying company.
Last checked 26 October 2026.