Business sale finance
Vendor Finance Agreements in Australia
Deferred payment changes a seller's risk after completion. Agree repayment, security and priority before handing over the business.
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In short
Vendor finance lets a buyer pay part of a business purchase price after completion. The seller becomes a creditor, so repayment terms alone are not enough: security, existing lenders, guarantees and default provisions need to be settled before the business changes hands.
Where vendor finance fits in a business sale
A buyer may pay a deposit and completion amount, with the balance payable by instalments. That can bridge a funding gap, but it transfers credit risk to the seller. If the business underperforms after completion, the agreed debt still needs to be paid; a seller may have limited practical recovery if the buyer has no other assets.
For an asset sale, identify the assets being sold and those offered as collateral. For a share sale, distinguish security over the acquired shares from security granted by the operating company. Corporate approvals, existing finance restrictions and financial-assistance rules may need separate assessment. Read our business sales and acquisitions page and sale tax considerations; tax treatment should be confirmed with your tax adviser.
Terms to settle before signing
- Amount and repayment: principal, instalment dates, final maturity, payment method and how any completion adjustment changes the balance.
- Interest: rate, calculation, accrual, payment dates and whether default interest is proportionate and legally supportable.
- Early repayment: whether it is allowed and whether any fees or minimum interest apply.
- Information: financial reports and notices needed to monitor the buyer's position, without accidentally retaining management control.
- Default: defined events, notice and cure periods, acceleration rights and interaction with the sale agreement.
- Set-off: whether a warranty claim can reduce instalments, and how contested amounts are handled.
- Security and guarantees: what supports the debt, who provides it, when it takes effect and how it is released after payment.
PPSR security and lender priority
A signed repayment promise does not automatically give the seller security over the business assets. A security interest must be properly created and, where applicable, perfected. Registration on the Personal Property Securities Register does not itself create the underlying interest or prove asset ownership.
Search using the legally required grantor identifier, not just a trading name, and check relevant serial-numbered property. Existing lender registrations may require releases or a priority arrangement. The PPSR priority guidance explains why ranking depends on more than a simple first-to-register rule.
A seller's interest may qualify as a purchase-money security interest (PMSI), but special priority depends on the actual interest, collateral and registration requirements. Do not tick the PMSI box or assume a registration deadline without advice on the transaction.
Guarantees and credit regulation
A personal guarantee can provide another source of payment, but its value depends on enforceability and the guarantor's resources. Define its cap, duration, release and treatment of variations. A guarantor may need independent legal advice from a separate lawyer.
A business-sale label does not resolve every credit-regulation question. The parties, predominant purpose, charges and course of business must be checked against the National Credit Code and credit-licensing requirements, including any exemptions.
Documents to send for a fixed-fee review
Send the heads of agreement, sale agreement, proposed repayment terms, security documents, existing finance details and completion date. We scope contract drafting or review and identify any specialist input required. Proceedings and debt-recovery litigation are outside our practice.
Frequently asked questions
What is a vendor-finance agreement?
It documents the part of a purchase price the seller allows the buyer to pay after completion, including repayment, interest if applicable, security and default terms. It should be coordinated with the business or share sale agreement.
Is vendor finance the same as an earn-out?
No. Vendor finance ordinarily defers an agreed amount of the price. An earn-out makes part of the price depend on future performance. A transaction can include both, but the calculation, payment and security clauses need to distinguish them.
Does registering on the PPSR create security?
No. The parties need an effective security arrangement. PPSR registration is a separate step that may perfect the security interest and affect priority and insolvency outcomes. The correct grantor, collateral, timing and any PMSI claim must be checked.
Can a bank rank ahead of the seller?
Yes. Existing bank security, perfection rules and any priority agreement can affect who is paid first. A qualifying purchase-money security interest can have special priority, but eligibility and registration timing must be assessed rather than assumed.
Can Envision Legal review vendor-finance documents?
We can scope fixed-fee drafting or review of business-sale and deferred-payment documents, security and guarantees, subject to the transaction and any specialist requirements. We do not offer debt-recovery litigation or court representation.
Two ways to start
Get a fixed fee before any work starts.
Answer a few short questions, attach your documents if you have them, and a senior lawyer replies with the scope and the price.
Know what you need? Request a fixed-fee quote and upload your documents. Not sure of scope? Book a short call with a senior lawyer instead.