Why Vendor Finance and Buy-Out Options are Increasing

by Vanessa Lovie 8th of April, 2025

Why Vendor Finance Options are Increasing

During COVID lockdowns and the wave of business shutdowns, sellers and brokers had to get strategic to close deals.

With banks tightening on lending, cautious buyers, and a lot of uncertainty, many sellers turned to vendor finance and buy-out periods to get sales across the line.

Fast forward to 2025, and we’re seeing an increase in these options to structure business sales, because they work.

COVID taught business owners and brokers to either 'batten down the hatches' or get creative. For many, that meant adapting deal structures to keep deals moving.

So, let’s break down the difference between vendor finance and buy-outs and what they could mean for your business sale.

Buyout Periods vs. Vendor Finance

Buy-Outs

A buy-out period is when the seller sticks around after the business is sold. It could be a few weeks, a few months, or sometimes even longer. The goal? To keep things running smoothly while the new owner gets settled in.

It’s like handing over the keys, but the not walking away just yet.

Buy-outs can be a great way to maintain momentum during the transition. The seller is there to introduce key clients and suppliers, show how things work behind the scenes, and answer the million little questions that pop up in those first few months.

The Good

It gives the buyer confidence. They’re not left in the dark, and they can build relationships with staff and customers while the seller is still around. It also helps avoid disruption to operations and income, which can be a big plus for both sides.
Potential Risks

The lines of authority can get blurry. Who’s really in charge? If the seller struggles to let go or the buyer wants to take control faster, it can create tension. It’s important to have clear terms around roles, responsibilities, and how long the buy-out will last.

There’s also the risk of burnout. Some sellers are emotionally ready to exit but end up hanging around longer than they wanted, especially if the buyer leans on them too much. And if the seller is being paid to stay on (like a consultancy arrangement), it can impact the buyer’s cash flow.

Communication is very important Agree on the timeline, outline the handover plan, and make sure both parties know when the training wheels come off. A structured exit keeps everyone on the same page.

Buy-out periods can be hugely valuable, but only if they’re managed right. When they’re done well, they give the buyer a solid start and protect the value of the business. When they’re done poorly, they can lead to resentment, confusion, and unnecessary delays.

Vendor Finance

Vendor finance is when the seller becomes the lender. Instead of the buyer getting all the money from the bank, they pay a deposit and then pay the rest off over time, usually with interest.

It’s basically the business version of “buy now, pay later.”

This option can be a deal-saver if the buyer can’t secure a full loan or needs a bit of breathing room with cash flow. It’s also useful in deals with a lot of stock or equipment, where the buyer might not have the upfront capital to cover everything, but the business can generate income to pay it off.

The Good

It opens the door to more buyers, especially those who are keen but just can’t get across the line with the banks. It can help close a deal faster and might even let the seller get a better price overall by offering flexible terms.
Potential Risks

The biggest one - the buyer defaults. If the buyer stops paying, the seller could be left chasing money or even trying to get the business back. It’s also worth remembering the seller won’t receive the full sale amount upfront, which can affect their own future plans.

If you’re offering vendor finance, you need to be selective. Do your due diligence on the buyer. Are they capable of running the business? Can they actually repay the loan? Get everything in writing, make sure you speak with a solicitor! Write clear terms, timelines, what happens if payments are missed, and any security the seller holds.

Vendor finance can get the deal over the line, but it’s not risk-free. It works best when there’s trust, clear documentation, and a buyer with solid intent and a realistic plan to repay.

Think of it as a handshake with a contract. Helpful, yes. But not something to offer without proper checks and protections in place.

What is the Best Option For Your Business?

Well, vendor finance and buyout periods aren’t really about your business. They’re about helping the buyer make the deal work.

That said, they can be a good move for you as the seller.

Both options are tools to get the sale over the line. Not every buyer will have the funds available or feel confident taking over a business solo from day one. Offering vendor finance or a short-term buyout period can make your business more attractive and accessible to serious buyers.

And that benefits you.

By offering flexible terms, you’re opening the door to more buyers, especially those who are motivated and capable but just need a little support to get started. It can mean a faster sale and, in some cases, a better price because you’re reducing risk for the buyer and increasing the perceived value of the deal.

At the end of the day, it’s about finding the right buyer. If offering vendor finance or a transition period helps make that match, it’s worth considering.

As a Buyer, What if the Seller Won't Offer Vendor Finance or Buy-Out Options

Well, I guess it's not the business for you.

If you need these options to buy the business and the seller isnt willing to provide. Then you may be at an impasse.

The seller does take on risk offering these options. They may be hesitant for a number of reasons, and if you havent managed to convince them otherwise, keep in contact with them, but continue your search for another business.

How Can You Structure a Deal that Includes Vendor Finance or Buy Outs?

It all comes down to negotiation. Vendor finance and buy-outs aren’t one-size-fits-all, they’re flexible tools you can use to get a deal across the line.

There are some great podcasts out there like this one from Aspect Legal on Structuring a Buy-Out Deal

If you're open to vendor finance, you and the buyer will agree on a deposit amount, repayment terms, and interest rate. It’s usually documented in the sale contract or as a separate loan agreement. Make sure your solicitor drafts this properly, you're essentially becoming a lender, so protect yourself.

For buy-outs, you can agree on a transition periodsuch as 30 days, 3 months, even 6 months, whatever suits both parties. During that time, you might be on a retainer or work a few days a week to assist with handover, training staff, or introducing key clients.

In both cases, clarity is key.

Define the terms, document everything, and make sure everyone knows their role post-sale. These options work best when there’s trust, open communication, and a clear timeline to hand over the reins.

Originally Published: September 2023

Updated: April 2025

Tags: buying a business buyer finance