Vendor finance is funding provided by the seller of an asset, helping the buyer settle the transaction. The vendor effectively defers part of the sale price as a loan, paid back by the buyer over an agreed period with interest. The vendor takes security over the asset (often a second mortgage or unregistered interest) and receives the deferred payment plus interest over time.
Vendor finance is common in business sales, where the vendor agrees to take a portion of the sale price as a note repaid over two to five years from the business's cashflow. It also appears in property transactions, particularly off-market or development deals, where the vendor accepts a delayed payment in exchange for a higher headline price or other favourable terms.
For the buyer, vendor finance can fund a transaction the bank channel will not fully support. For the vendor, it can deliver a higher sale price than an all-cash deal would have. For both, the credit risk is the buyer's ability to meet the future payments, often supported by the asset itself. Each vendor finance arrangement is structured per deal; no two are the same.