Vendor finance vs a property-secured private loan

When a seller says “I’ll carry some of the price”, it can sound like the easiest finance you’ll ever get. No lender, no application, a friendly handshake. Sometimes it really is the best deal on the table. Other times the seller’s generosity is priced into the deal, or into terms that let them take the asset back if you slip. Here’s how vendor finance stacks up against paying the seller in full with a property-secured private loan.

What is vendor finance, and how is it different from a private loan?

Vendor finance (also called vendor terms or seller finance) means the seller lets you pay part of the price after completion. The seller becomes your lender, sets the terms and holds whatever security the contract gives them.

A property-secured private loan means a lender advances money against real estate you already own, so you can pay the seller everything at settlement. Your relationship with the seller ends at settlement; your relationship with the lender runs until the loan’s exit.

Both are used in two quite different deals: buying a business and buying property. The mechanics differ for each.

How do vendor finance and a private loan compare side by side?

Question	Vendor finance	Property-secured private loan
Who lends	The seller	A private lender
Security	Whatever the contract gives the seller: a mortgage back, retained title, PPSR registration or guarantees	A first mortgage, second mortgage or caveat over property you own
Ownership at settlement	Business: usually yours, with the seller holding security. Property: may stay with the seller under a terms contract	Fully yours at settlement
Typical term	Can run for years	1 to 24 months on a first mortgage; second mortgages and caveats typically shorter
Price negotiation	Seller may want a higher price for offering terms	Paying in full can strengthen your negotiating position
Who sets default terms	The seller’s solicitor	The lender’s documents, set out in the Letter of Offer
Ongoing involvement of the seller	Continues until paid	Ends at settlement
Speed	Depends on negotiation	Funding possible within 24–48 hours once documents are in
Exit	Regular payments to the seller	A sale, a bank refinance or business cash flow

How does vendor finance work when buying a business?

In a business sale, vendor finance usually means the seller accepts a deposit and part of the price at completion, then receives the rest in instalments. Sometimes payments are tied to performance, such as revenue targets in the first year.

The seller will want protection for the unpaid balance. Common tools are:

• Personal guarantees from the buyer’s directors.
• A security interest over the business’s assets, registered on the Personal Property Securities Register. The PPSR is the official register where a party lets the world know it claims a security interest in personal property such as equipment, vehicles and stock. It doesn’t cover land or buildings.
• A right to step back in if payments stop, set out in the sale contract.

business.gov.au’s buying-a-business guidance suggests checking whether any of the business’s assets already carry debts registered on the PPSR, and reviewing three to five years of financials, licences, leases and supplier agreements before signing. That due diligence matters even more when the seller will remain involved as your creditor.

How does vendor finance work when buying property?

With property, vendor finance usually takes one of two forms:

1. A mortgage back to the seller. You complete the purchase, title transfers to you, and the seller registers a mortgage over the property for the unpaid balance. This behaves much like any other registered mortgage.
2. A terms contract. The seller keeps legal title and you pay the price in instalments, often while you occupy or use the property. Title only transfers once you’ve paid enough. Victoria has legislated to prohibit certain terms contracts and rent-to-buy arrangements, so in any state this structure needs your solicitor’s close attention before you sign.

One timing trap: deferring settlement doesn’t necessarily defer duty. Revenue NSW, for example, says the purchaser pays transfer duty on the earlier of settlement or three months after signing the contract.

When does vendor finance suit better?

Choose vendor finance if:

• The seller offers genuinely cheap, long terms, and the default clauses are fair.
• You need years, not months, to pay, and no bank will fund the balance yet. Private loans are short-term by design.
• The seller wants to stay involved, for example in a handover period, and a deferred payment keeps everyone aligned.
• You don’t own property that could secure a loan.

When does a property-secured private loan suit better?

Choose a private loan if:

• You want to settle in full and negotiate as a full-payment buyer rather than one asking for terms.
• You want clean ownership from day one, with no seller holding a right to take the asset back.
• The seller won’t offer terms, or wants a premium for them.
• Time is short: an exchange deadline, an auction, or a seller with another buyer waiting.
• There’s a clear exit within 24 months, such as refinancing to a bank once you’ve owned the business for a year, or selling another property.

Our pages on buying a business with property security and buying commercial property fast go deeper on each situation. If you plan to bid, buying at auction with property equity covers the unconditional-contract side.

Can vendor finance and a private loan work together?

Yes. A common pattern is a private loan for the upfront payment and vendor terms for a smaller balance. Two points need settling early:

• Ranking. If the seller and the private lender both want security, the order they rank in has to be agreed in writing.
• Consent. The vendor’s documents may restrict further borrowing. Your solicitor should line the two sets of paperwork up before exchange.

What does the choice look like on an actual deal?

Illustrative example: a Ballarat engineer agrees to buy a machining business for $600k. The seller offers terms: $250k at completion and $350k over three years, with the right to take the business back after any missed payment, and a price that’s firm. The buyer owns a home with a modest bank loan and an investment unit with no debt. Illustrative: the buyer instead offers $560k in full, funded by a $560k private first mortgage over the investment unit with interest capitalised, and the seller accepts the cleaner deal. Twelve months later, with a year of trading in the new owner’s name, the buyer refinances to a bank and the private loan is repaid.

Now change the facts. If the seller had offered the balance over five years with little or no interest and fair default terms, and the buyer had no spare property, vendor finance would likely have been the better deal.

Which questions should you ask the seller before accepting terms?

• What happens, step by step, if I miss a payment?
• Will title (or full control of the business) pass to me at completion?
• Is there any discount for paying the full price at settlement?
• Can I pay out the balance early, and is there a cost to do so?
• Will you object to me borrowing against other property to pay you?

The answers usually make the choice obvious.

What does each cost, without quoting a price?

• Vendor finance: any interest the seller charges, any premium built into the price, legal costs for the extra documents, and the cost of tighter default clauses if things go wrong.
• Private loan: interest set on the security, LVR, term and exit; an assessment fee shown on the Letter of Offer; legal, registration and discharge costs. No formal valuation required. Interest can be prepaid or capitalised so a new business isn’t carrying repayments in its first months.

The commercial property purchase timeline helps you line funding up with contract dates, and if the security belongs to a family member, read third-party security first. When you’re ready, test a full-price settlement against the seller’s terms.

Want to pay the seller in full? See if you qualify

Tell us what you’re buying, the property you can offer, what’s owing on it and how you’ll repay. A specialist reads every enquiry and will tell you honestly if the seller’s terms look like the better deal.

There’s no credit check to enquire, and your details aren’t broadcast to a line-up of lenders. Our lending partner fundU lends directly. Accurate answers about the property and its existing debts are what get you the right answer the first time.

Make your 60-second enquiry and see what a full-payment offer could look like.