What is a vendor loan note?

A vendor loan note is a type of financing that is used in business acquisitions or sales, where the seller agrees to provide financing to the buyer to help facilitate the transaction. The vendor loan note is essentially a promissory note or a loan agreement that outlines the terms of the financing agreement.

In a vendor loan note, the seller agrees to lend a portion of the purchase price to the buyer, typically in the form of a loan with a fixed interest rate, a repayment schedule, and other terms and conditions. The buyer is responsible for repaying the loan over the agreed-upon period, typically with interest, and the seller retains a security interest in the assets of the business until the loan is fully repaid.

Vendor loan notes can be beneficial for both the buyer and the seller. For the buyer, it can provide an additional source of financing to help complete the transaction, especially if traditional financing options are not available or are insufficient. For the seller, it can help facilitate the sale of the business by providing an attractive financing option to potential buyers, and may also provide a stream of passive income.

It’s important to note that vendor loan notes can be complex and involve a variety of legal and financial considerations. It’s important to seek professional advice and carefully evaluate the terms and conditions of the financing agreement before entering into a vendor loan note.