Structuring a vendor finance arrangement
Vendor finance allows a seller to fund part of the purchase price, creating a debtor-creditor relationship with the buyer. The arrangement must be structured to comply with the National Consumer Credit Protection Act (if applicable) and to perfect the vendor's security interest under the PPSA.
This is an 8-step workflow for structuring a vendor finance arrangement in an Australian business or asset sale. It covers the credit licensing threshold, PPSA registration, security documentation, and the default provisions that protect the vendor.
Before you start
- Heads of agreement or sale contract with vendor finance terms agreed in principle
- Financial details: loan amount, interest rate, repayment schedule, and term
- Details of any security to be granted (assets, real property, personal guarantees)
- Assessment of whether the arrangement triggers credit licensing obligations
The workflow
Determine credit licensing applicability
Assess whether the vendor finance arrangement is regulated credit under the National Consumer Credit Protection Act 2009. If the borrower is using funds for personal, domestic, or household purposes, an Australian Credit Licence may be required. Most business-purpose lending is exempt.
Structure the loan terms
Draft the vendor finance agreement setting out the principal amount, interest rate (fixed or variable), repayment schedule, and maturity date. Include provisions for early repayment, interest calculation method, and any balloon payment at maturity.
Prepare the security documentation
Draft a general security agreement (GSA) over the business assets being sold, or a specific security interest over identified property. If real property security is required, prepare a mortgage for registration at the relevant Land Registry.
Register on the PPSR
Register the vendor's security interest on the Personal Property Securities Register before the buyer takes possession or within 20 business days of the security agreement. Choose the correct collateral class and registration duration.
Draft default and enforcement provisions
Define events of default (missed payments, breach of covenants, insolvency) and the vendor's enforcement rights. Include cure periods, acceleration clauses, and the process for enforcing the security interest under the PPSA.
Include protective covenants
Draft financial and operational covenants requiring the buyer to maintain the business, keep adequate insurance, provide periodic financial statements, and refrain from granting competing security interests without consent.
Address personal guarantees
If directors or related parties will guarantee the vendor finance, prepare personal guarantee and indemnity documentation. Ensure the guarantor receives independent legal advice and signs a solicitor's certificate.
Finalise and settle the arrangement
Coordinate settlement with the broader sale transaction. Ensure the PPSR registration is perfected, all security documents are executed, and the vendor finance funds flow as part of the completion adjustments.
What you will have at the end
A fully documented vendor finance arrangement with perfected PPSA security, clear default provisions, and protective covenants — integrated into the broader business sale transaction.
Common issues
- Failing to register the security interest on the PPSR before the buyer takes possession
- Not assessing whether the arrangement triggers credit licensing requirements
- Inadequate default provisions that make enforcement difficult
- Missing personal guarantee documentation for director guarantors
- Not coordinating the vendor finance settlement with the broader sale completion
Run this workflow on a real matter
Quillio identifies PPSA compliance gaps and missing security provisions in vendor finance documentation. See /practice-areas/commercial-lawyers or start a free trial.
This workflow covers standard business-purpose vendor finance. Arrangements involving consumer credit may require an Australian Credit Licence and additional disclosure obligations.
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