Buying or selling a business is exciting, but let’s be honest - it can also be a bit intimidating when the money side doesn’t line up neatly.
Sometimes a buyer has the skills and the plan, but can’t secure bank funding fast enough (or at all). Sometimes a seller wants to widen their pool of potential buyers and get a better sale price. That’s where vendor finance can come in.
This guide is updated for 2026 so you can feel confident you’re working with current expectations in New Zealand, including the way lenders, regulators and buyers tend to approach business sales and “non-bank” funding arrangements.
Vendor finance can be a genuinely helpful tool - but only if you document it properly, understand the risks, and set clear expectations from day one.
What Is Vendor Finance (And How Does It Work In NZ)?
Vendor finance (also called “seller finance”) is when the seller funds part of the purchase price for the buyer, instead of the buyer paying the full amount upfront.
In practical terms, it usually looks like this:
- The buyer pays a deposit (for example, 20–50%).
- The seller agrees to receive the balance later, usually by instalments over an agreed period.
- The buyer repays the seller under a documented finance arrangement (often with interest and security).
Vendor finance is common in business sales (especially small-to-medium businesses) because it can bridge the gap between:
- what the buyer can fund upfront, and
- what the seller needs to make the sale worthwhile.
Vendor finance can be used in different deal structures, including:
- Asset sales (most common for small business purchases) where the buyer purchases key business assets such as equipment, goodwill, stock, IP and customer lists.
- Share sales, where the buyer purchases shares in the company that owns the business.
If you’re buying or selling a business, your vendor finance terms should align with your overall sale documents, like an Asset Sale Agreement (asset deal) or a share sale agreement (share deal). The key is that the “deal terms” and the “repayment terms” must work together - otherwise you can end up with confusion about who owns what, and when.
When Is Vendor Finance A Good Idea (And When Isn’t It)?
Vendor finance isn’t “good” or “bad” by default. It’s a tool - and it works best when it fits the commercial reality of the transaction.
Vendor Finance Can Be A Great Option If:
- The business has stable cashflow and can realistically service repayments.
- The buyer has experience running the business (or a credible plan and support team).
- The seller is confident the business is sale-ready and that key risks have been disclosed upfront.
- Bank funding is limited, slow, or only covers part of the purchase price.
- The seller wants a better sale price (some sellers accept a higher price if they’re paid over time).
Vendor Finance Might Not Be A Good Fit If:
- The business is highly volatile (seasonal, trend-driven, or overly dependent on one client).
- The buyer is relying on “future success” alone without a realistic plan for working capital and expenses.
- The seller needs full payment immediately (for another purchase, retirement needs, or to pay down debts).
- The parties don’t trust each other enough to work through disputes or operational handovers.
A common mistake is treating vendor finance as “just a payment plan”. In reality, it’s closer to the seller becoming a lender - which is why it needs proper legal documentation and risk controls.
What Should A Vendor Finance Agreement Include?
A strong vendor finance agreement sets out the repayment deal in plain English, but also covers the legal protections that matter if things go wrong.
There’s no one-size-fits-all template (and using generic online forms can create real gaps). That said, most NZ vendor finance agreements should cover the following issues.
1) The Amount Financed And The Repayment Structure
- Principal amount (how much is being financed by the vendor).
- Repayment schedule (weekly, fortnightly, monthly).
- Term (how long the buyer has to repay).
- Interest (if any), including how it’s calculated.
- Fees (if any), like establishment or admin fees.
It’s also smart to clarify whether repayments start immediately, or after a short “grace period” post-settlement (this can matter if the buyer needs time to stabilise operations).
2) What Happens If The Buyer Misses A Payment (Default Terms)
This is the uncomfortable part - but it’s also the part that can save your deal.
Default clauses usually address:
- what counts as a default (missed payment, insolvency, breach of the sale agreement, failure to maintain insurance, etc.);
- notice periods (how and when the seller must notify the buyer);
- cure periods (time for the buyer to fix the breach);
- default interest (higher interest after default); and
- enforcement rights (what the seller can do if the default isn’t fixed).
Clear default processes reduce the risk of disputes spiralling, especially where the buyer is still operating the business day-to-day.
3) Security: How The Seller Protects The Debt
One of the biggest practical questions is: if the buyer doesn’t pay, what can the seller actually do?
Vendor finance often involves some form of security, such as:
- a security interest over business assets (often registered on the PPSR);
- a personal guarantee from the buyer (or directors, if the buyer is a company);
- a charge over specific assets; or
- retention of title or conditional transfer terms (depending on the structure).
Security should be consistent with the rest of the transaction documents. For example, if the deal involves broader creditor protections or business assets, a General Security Agreement may be relevant.
4) Relationship With The Sale Agreement
Vendor finance rarely exists in isolation. It usually sits alongside:
- the business sale agreement,
- a settlement/completion checklist,
- handover obligations (training, introductions to suppliers), and
- restraint and confidentiality obligations.
If the buyer is purchasing a company rather than assets, your sale process may involve documents like a Shareholders Agreement or a constitution update, depending on how ownership and control is structured.
The key is that your vendor finance terms shouldn’t accidentally contradict the sale terms - especially around ownership of assets, management control, and what happens on termination.
5) Early Repayment, Refinancing And Sale Of The Business
Life happens. Businesses get refinanced. Buyers may want to pay out the vendor early. Or the buyer may want to sell the business before the vendor finance is fully repaid.
Your agreement should clearly set out:
- whether the buyer can repay early without penalty;
- how break fees (if any) work;
- whether the buyer can refinance the debt with a bank and discharge the vendor finance; and
- whether the buyer can sell the business before repayment - and if so, whether seller consent is required.
These clauses are particularly important for protecting the seller’s position if the buyer tries to “on-sell” the business while the seller is still effectively funding it.
Key Legal And Compliance Issues You Shouldn’t Ignore
Vendor finance is commercial, but it still sits within a legal framework. The main risks usually come from unclear documentation, unrealistic repayment structures, and misunderstandings about disclosure and consumer-style protections.
Fair Trading Act 1986: Don’t Oversell The Business
When selling a business, you need to be very careful about what you say (and what you put in writing) about revenue, profits, expected growth, and “guaranteed” performance.
Under the Fair Trading Act 1986, misleading or deceptive conduct (or misleading representations) can create serious exposure. This can apply even if you didn’t intend to mislead - what matters is the overall impression created.
This is especially relevant in vendor finance because:
- the seller often stays involved longer (handover support, training, ongoing relationship), and
- the buyer may argue they relied on the seller’s claims when agreeing to the repayment plan.
Practical tip: make sure your sale documents contain clear disclosure, warranties, and a sensible due diligence process. If you’re unsure what’s “safe” to say, a lawyer can help you shape the deal so it stays commercially attractive without creating legal risk.
Contract Enforcement: Clarity Beats Complexity
If a dispute happens later, enforcement often comes down to whether your documents are clear, consistent, and properly signed.
In practice, problems often arise where:
- the vendor finance terms are “agreed by email” but never properly documented;
- the sale agreement says one thing, but the repayment plan says another;
- security is mentioned but never actually registered or completed; or
- the parties disagree about what happens if the buyer defaults.
It’s much easier (and cheaper) to set the deal up properly at the start than to try to fix it during a dispute.
If The Buyer Is A Company, Director And Shareholder Settings Matter
Many business purchases are made through a company for liability and tax structuring reasons. That can be sensible - but it changes the risk profile for the seller.
If the buyer company fails, the seller may be left chasing an empty entity unless there are:
- personal guarantees from directors/shareholders;
- security over assets; and
- clear rules around who controls the company and decision-making.
Depending on the structure, governance documents like a Company Constitution can matter more than people expect, especially where there are multiple owners or where the seller retains some ongoing involvement.
Privacy And Data: Don’t Forget The Customer List
In many business sales, a huge part of the value is the customer database, mailing list, booking history, or subscription list.
If personal information is being transferred as part of the deal, the Privacy Act 2020 becomes relevant. You’ll want to think about:
- whether your customers were told their information may be transferred in a sale;
- whether you need to notify customers (or update your privacy disclosures); and
- how that data will be stored and secured after handover.
This is one reason many businesses keep their customer data practices tidy with a properly drafted Privacy Policy well before any sale is on the table.
Practical Tips For Buyers And Sellers Using Vendor Finance
Vendor finance works best when both parties treat it as a long-term relationship and set expectations early.
If You’re The Seller
- Do your due diligence on the buyer (experience, cashflow, credit history, realistic plan).
- Get proper security and make sure it’s actually completed (not just “promised”).
- Be clear about handover and training, including how long you’ll stay involved and what happens if the buyer asks for more support.
- Don’t rely on verbal promises - if it matters, it goes in writing.
- Think about restraints and confidentiality, especially if you’re providing vendor finance and don’t want to fund a buyer who then pivots the business in a way that destroys goodwill.
It’s also common for sellers to want tighter control over enforcement rights. A tailored Vendor Finance Agreement is usually the safest approach because it can be drafted to match the exact structure of the sale and the security you’re taking.
If You’re The Buyer
- Make sure the repayment plan matches real cashflow (not best-case forecasts).
- Factor in working capital - you’ll need money to run the business, not just to buy it.
- Understand what you’re giving as security (and what you could lose if things go wrong).
- Negotiate flexibility where possible, like early repayment rights or a sensible cure period for missed payments.
- Check how default is defined - you don’t want the seller to be able to call default for minor technical issues.
If you’re taking over a business with staff, also make sure your employment paperwork is ready to go, like an Employment Contract for new hires or updated terms for retained staff, depending on the sale structure and what you’re agreeing with employees.
A Quick Reality Check: Vendor Finance Doesn’t Replace Good Due Diligence
Because vendor finance can feel “easier” than bank funding, some buyers rush the deal. That’s risky.
You still want to understand:
- financial records and tax position,
- key supplier/customer agreements,
- lease terms (and whether the lease can be assigned),
- IP ownership (brand, website, domain names), and
- any current disputes or compliance issues.
Vendor finance can help you buy the business - but it doesn’t make a bad business a good one.
Key Takeaways
- Vendor finance is when the seller funds part of the business purchase price and the buyer repays it over time, usually under a formal repayment agreement.
- A properly drafted vendor finance agreement should clearly cover repayments, interest (if any), default events, enforcement rights, and what happens if the buyer refinances or sells.
- Security is a major issue in vendor finance - without it, the seller may struggle to recover the unpaid balance if the buyer defaults.
- The Fair Trading Act 1986 is particularly relevant in vendor finance transactions because business performance representations can become a key point of dispute later.
- If customer data is part of the sale, you should consider Privacy Act 2020 obligations and make sure your privacy practices support a lawful transfer.
- Vendor finance can be a great deal for both sides, but it works best when the documents are tailored to the transaction and the risks are managed upfront.
If you’d like help drafting or reviewing a vendor finance agreement (or your wider business sale documents), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
