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Selling or Buying a Business: Can Vendor Finance Be a Strategic Tool?

Gabriel Hansen, Associate, MDN Group

For many business buyers – especially first-time or management buy-in candidates – raising the full purchase price through traditional bank loans or private equity can be difficult. In situations where buyers face a funding gap, vendor finance can be a practical solution to complete the deal.

What Is Vendor Finance?

Vendor finance (also called seller financing) is when the seller provides a loan to the buyer to cover part of the acquisition price. In this structure, the seller acts as a lender, and the buyer repays the loan in agreed installments, often with interest, over a specific period. This helps bridge any financing shortfalls and allows the transaction to proceed without full third-party funding upfront. Learn more about Vendor Finance from Investopedia.

Key Benefits and Considerations

Vendor finance adds flexibility to the negotiation process. Both parties can tailor repayment terms, interest rates, and timeframes to fit their commercial needs.

From the buyer’s perspective, vendor finance can unlock deals that might otherwise stall due to limited access to capital. It can also speed up the sale, as the buyer avoids lengthy external loan applications.

Sellers, on the other hand, may command a higher valuation for their business by offering this financing option, thereby appealing to a broader buyer pool – including strategic investors or operators without immediate access to full funding.

“In competitive sale processes, vendor finance can be the difference between closing a deal or losing momentum entirely,” says Robert Nilsen, Associate at MDN Group. “We often see sellers willing to finance part of the price to secure the right buyer and achieve stronger overall terms.”

However, vendor finance often means that the seller remains financially connected to the business post-sale. In some cases, the seller may also stay engaged operationally to support a smooth transition and protect their loan. This involvement can be beneficial, but it must be clearly defined to avoid misalignment.

Conducting Due Diligence

While vendor finance can be a win-win scenario, it is essential to approach the transaction with proper planning. Both parties should conduct thorough due diligence and seek professional financial and legal advice before finalising the structure.

Each business and transaction is unique. Vendor finance must be aligned with the buyer’s repayment capacity and the seller’s willingness to defer part of the sale proceeds.

“Vendor finance structures work best when there’s transparency and trust on both sides,” notes Denis Stukalov, Managing Partner at MDN Group. “A well-drafted agreement backed by commercial logic protects the interests of everyone involved.”

Whether you are buying or selling, ensure the deal structure fits your strategic goals.

About MDN Group

MDN Group is a global investment banking firm that helps mid-sized companies in Europe and growing markets. We focus on buying and selling businesses (M&A), raising funds, and giving smart advice to help businesses grow. We work closely with business owners, investors, and entrepreneurs, guiding them from start to finish – whether they’re preparing to sell a business or looking to buy one for growth.

Our services are customised to get you the best deal, make sure everything goes smoothly, and match your long-term goals. Check out our Mergers & Acquisitions page to see how we handle deals carefully and professionally.

We also offer special Corporate Finance Advisory and Growth & Exit Strategy services. These help business owners plan their next steps and increase their company’s value. If you’re thinking about financing options or selling your business, our team is here to support you every step of the way.