Vendor financing has become a popular trend in business sales, with one out of 10 deals in the past year involving this method, compared to just one-in-100 deals the year before. This increase in vendor-financed sales is seen as a sign of the times, according to Chris Small, the managing director of ABC Business Sales.
Small noted that vendor financing has been instrumental in bridging the gap between asking and selling prices, especially for younger buyers who may not have the financial means to purchase a business outright. He highlighted that many of the businesses being sold are owned by baby boomers who are motivated to sell and willing to work out flexible financing arrangements.
The managing director emphasized that vendor financing also signals the vendor’s confidence in the business to the buyer. With interest rates ranging from 12 to 14 percent, established business owners view vendor financing as a viable investment option.
Small attributed the rise in vendor financing to high interest rates and banks’ limitations on lending for business purchases. Vendors, being more familiar with the risks in their businesses, are more comfortable offering financing compared to banks.
Despite a high volume of interested buyers, Small mentioned that asking prices are under pressure due to the economic downturn and high interest rates. However, he noted that prices have remained stable, with sales volumes down only slightly over the past year.
Overall, the increase in vendor-financed sales reflects the changing landscape of business transactions, with more buyers opting for this financing option to secure their dream businesses.