Introduction

Selling or buying a business is not just about price, it is about structure. One mechanism that often unlocks deals is the vendor loan. It sounds simple: the seller grants a loan to the buyer for part of the purchase price. No new cash leaves the seller’s pocket, the payment is simply deferred and treated as a loan. But when structured well, it is far more than a payment delay, it is a strategic tool.

What is a vendor loan and why is it used?

A vendor loan is a deferred payment mechanism where the seller agrees to finance part of the purchase price by granting a loan to the buyer. This loan is documented in the SPA or in a separate vendor loan agreement and comes with its own terms: interest, repayment schedule, and conditions.

Why do entrepreneurs and investors like it?

- For buyers: It complements bank debt and equity, adding flexibility and balance to the deal structure.

- For sellers: It can optimise the sale price through interest earned and help close the transaction when bank financing is tight.

- For both: It creates breathing room and makes deals possible that might otherwise stall.

In Belgium, vendor loans are common in SME transactions because they reduce reliance on external financing and accelerate closing.

Advantages and disadvantages

Advantages:

- Unlocks deals when bank financing is limited.

- Creates trust and alignment between buyer and seller.

- Can increase total return for the seller through interest.

Disadvantages:

- Adds credit risk for the seller if the buyer defaults.

- Requires clear subordination terms to avoid conflicts with banks.

- Poorly drafted clauses can lead to disputes or tax issues.

At Dups, we help entrepreneurs weigh these pros and cons and decide if a vendor loan fits their strategy.

How it works

The seller agrees to defer part of the purchase price, converting it into a loan. This loan is documented in the SPA and comes with its own terms: interest, repayment schedule, and conditions. It is a win-win mechanism when drafted with precision.

Key points to secure

To make a vendor loan work without risk:

- Define subordination rank versus other debts: Clarify priority in case of insolvency.

- Set a market-rate interest: Avoid tax issues and maintain fairness.

- Clarify repayment terms: Include schedule, early repayment clauses, and penalties for late payment.

- Include acceleration triggers with cure periods: non-payment, insolvency events, and change of control allow immediate repayment after the agreed cure period.

These details turn a simple concept into a robust, enforceable agreement.

Common mistakes entrepreneurs make

- Vague repayment terms: Leads to disputes and uncertainty.

- Ignoring subordination: Creates conflicts with banks and jeopardises financing.

- Unrealistic interest rates: Can trigger tax scrutiny or make the deal unattractive.

These mistakes cost time and credibility. At Dups, we anticipate these risks and draft clauses that protect your interests.

Impact on negotiation leverage

Vendor loans are not just financial tools, they are negotiation levers. They can bridge valuation gaps, reassure buyers, and accelerate closing. For sellers, offering a vendor loan can justify a higher price. For buyers, accepting it can reduce upfront cash requirements and make the deal feasible. At Dups, we help entrepreneurs use vendor loans strategically, not just as a fallback.

Why it matters for entrepreneurs

A vendor loan is not just a financial tool, it is a negotiation lever. It can bridge gaps, unlock deals, and create trust between parties. But poorly drafted, it can lead to disputes and exposure. At dups, we make sure every clause works for you, not against you.

Role of advisors

Why involve an advisor? Because vendor loans are simple in theory but complex in practice. Financial modelling, legal drafting, and negotiation strategy must work together. At Dups, we combine financial and legal expertise under one roof. We help entrepreneurs:

- Structure vendor loans that protect interests and avoid disputes.

- Negotiate subordination and repayment terms with banks and buyers.

- Integrate vendor loans into the overall deal strategy for maximum leverage.

Our boutique model means we work with a select number of deals per year, ensuring full attention and speed. With our network of Belgian investors and European funds, we help you negotiate from a position of strength.

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