Pivot Point Advisory / Practical thinking

Vendor finance NZ

Vendor finance in NZ business sales means the seller funds part of the purchase price and the buyer repays it under agreed terms. It changes when the seller receives cash and how the buyer funds the purchase, so repayment capacity and the seller's exposure matter as much as the headline price.

Assess your proposed payment terms
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See clearly. Choose deliberately. Move decisively.

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Vendor financing: how it works for a business

The buyer pays part of the consideration at completion and owes the seller the agreed balance. The arrangement may include interest, scheduled repayments, a final lump sum and security. The terms are negotiated for the transaction and need appropriate documentation.

This guide concerns the sale of a business. Property vendor finance and supplier trade credit involve different transactions. We help owners assess the commercial and financial implications of business-sale terms; arranging a sale does not make the deferred balance risk-free.

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Vendor finance vs an earnout

A vendor-financed balance is generally a debt to be repaid under its terms. An earn out depends on an agreed future performance result. A fixed deferred payment, a vendor loan and contingent consideration can appear together, but should be shown separately.

Compare offers using the actual timing of cash, conditions, repayment risk and obligations that continue after completion. Two offers with the same stated total can have very different implications for the seller's plans.

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A simple vendor-finance example

Assume a hypothetical business sale price of $800,000. The buyer pays $600,000 at completion and the seller finances $200,000. Suppose the parties agree four equal principal instalments of $50,000, with interest addressed separately in their agreement.

Payment stagePrincipal receivedPrincipal still owed
Completion$600,000$200,000
First instalment$50,000$150,000
Second instalment$50,000$100,000
Third instalment$50,000$50,000
Final instalment$50,000$0

The NZD example illustrates principal only. It does not set an interest rate, repayment frequency or market norm. The real cash forecast must include interest, other debt, tax, investment and operating needs.

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Test the buyer's repayment capacity

Start with the cash the business can generate after normal operating requirements. Add the proposed repayment dates and any other funding obligations. Test slower sales, lower margins, customer delays and unexpected expenditure. A balloon payment needs a credible source of funds, not just an assumption that refinancing will be available.

Use cash flow forecasting and scenario planning to make the pressure visible. The buyer also needs enough working capital at completion to operate the business. Using every available dollar for the purchase can leave the business short immediately afterwards.

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Understand the seller's exposure

The seller remains financially exposed after control has changed. Consider the buyer's financial position, experience and other borrowings, the quality of information available during the loan period and what happens if payments stop. Security and guarantees need specialist legal consideration, including their priority and practical enforceability.

Agree operating control separately from the seller’s financial interest. Clarify reporting rights, restrictions, consent requirements and the process for missed payments in the agreement. The seller should also test whether delayed receipts fit their own commitments and exit objectives.

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Questions to resolve before agreeing

  • What amount is owed, and which entity or person owes it?
  • How are interest, repayment dates and any final lump sum calculated?
  • Can the buyer repay early, and on what terms?
  • What information must the buyer provide during the term?
  • What security, guarantees or lender consents are required?
  • How do default, dispute and enforcement provisions work?
  • How does the arrangement interact with sale conditions and tax treatment?

Take the proposed structure to your legal and tax advisers before committing. Our selling a business in NZ guide places these terms within the wider preparation and transition process.

Common questions

Does vendor finance mean the seller keeps ownership?

Not necessarily. Ownership and repayment arrangements depend on the transaction documents. A seller can transfer control while remaining a creditor.

Is vendor finance cheaper than bank finance?

There is no universal answer. Compare the agreed interest, fees, security, repayment timing and risk rather than assuming one source is cheaper.

Can vendor finance cover the whole price?

The parties may propose different structures, but affordability, risk and documentation need careful assessment. The business must still have enough cash to operate after the purchase.

Your next move

Assess your proposed payment terms

Bring the proposed completion payment, deferred balance and repayment schedule. We can help test the cash implications and the commercial questions to take to your legal and tax advisers.

Assess your proposed payment terms