What is 100% vendor finance?
100% vendor finance means the seller lends the buyer the whole purchase price. The buyer takes ownership at settlement and pays the seller in instalments from the business’s cash flow, under a written seller note (vendor loan agreement).
Most no-money-down deals use three funding parts: commercial debt (senior debt), seller finance and seller rollover. In 100% vendor finance, seller finance does all the work. Commercial debt is zero, and seller rollover is zero or optional. See seller finance explained.
Does 100% vendor finance really happen?
Yes. Josh Li, founder of G&L M&A Advisory and JC Health Group, bought two of his own clinics with 100% vendor finance: no bank, no equity partner, with each owner paid over time from the clinic’s cash flow. Other people the firm works with have also closed 100% seller-finance deals.
It is not the most common structure, and not every seller will agree. But when the seller’s priorities line up, it is the simplest deal there is.
How does 100% vendor finance work?
Illustrative example
Illustrative only. Real terms depend on the business and the seller.
A business is bought for $1.5M. It produces about $500k a year in reliable cash profit.
| Item | Amount |
|---|---|
| Purchase price | $1.5M |
| Commercial debt | $0 |
| Seller note | $1.5M |
| Seller rollover | $0 |
| Buyer’s cash | $0 |
If the note is repaid over five years, the buyer pays about $300k a year plus any agreed interest. Against $500k of cash profit, that is a DSCR of roughly 1.6x before interest. DSCR is cash profit divided by annual repayments. See DSCR explained.
If the same note were repaid over three years, repayments would be about $500k a year and the DSCR would fall to about 1.0x: no buffer at all. The term is what makes or breaks a 100% vendor-finance deal.
Why would a seller fund the whole price?
In our experience, the sellers who agree to 100% vendor finance care about three things more than a lump sum:
- The right successor. They want someone who will run the business the way they did, or better.
- Their staff and customers. They want people they’ve worked with for years looked after.
- A steady income. Regular payments suit many retiring owners better than one large sum they then have to invest.
These sellers often have no family successor, no buyer in their staff, and little interest from larger acquirers. A trusted operator in the same industry is the answer to their problem. That is why buying a competitor is often where 100% vendor finance happens.
What makes a seller say yes?
- Credibility. You already run a similar business. You understand the work, the regulation and the customers.
- A clear plan for their people. Say who stays, what changes and what doesn’t.
- Repayments they can believe in. Show the cash flow and the DSCR. A seller who sees a 1.5x buffer sleeps better.
- Security and reporting. Offer security over the business and regular financial updates.
- Time. These deals are built on trust, which takes more than one meeting.
How do you structure a 100% vendor-finance seller note?
- Start from cash profit. Use a conservative figure, not the best year on record.
- Set the term to fit. Choose a repayment period that keeps the DSCR around 1.5x.
- Consider a grace period. A few months without repayments, or with smaller ones, helps the business through the handover.
- Agree interest. Some sellers charge a rate; others accept a low rate in exchange for the right buyer.
- Give the seller security. Security over the business and regular financial reporting reassure the seller and make the deal easier to approve.
- Write down the handover. How long the seller stays, what they do and how introductions to staff and key customers will happen.
- Set fair default terms. Missed payments should trigger a notice and a cure period, not an instant loss of the business.
What are the risks of 100% vendor finance?
For the buyer
- The whole price is debt. Repayments are fixed whether the year is good or bad.
- Default terms. If you miss payments, the seller may be able to take the business back. Negotiate fair cure periods.
- Working capital. With no lender, there is no working-capital line. Make sure the business has enough cash on hand, or negotiate a grace period at the start.
For the seller
- Concentration. Their whole sale price depends on one buyer’s performance. That is why they choose carefully.
How does 100% vendor finance compare with the other structures?
| 60/40 | 70/20/10 | 100% vendor finance | |
|---|---|---|---|
| Bank involved | Yes | Yes | No |
| Seller cash at settlement | 60% | 70% | 0% |
| Seller’s ongoing income | Dividends | Note plus dividends | Note repayments |
| Speed and simplicity | Moderate | Moderate | Highest |
| Seller trust needed | High | Moderate | Highest |
See the 60/40 and 70/20/10 structures for the alternatives.
What kills 100% vendor-finance deals?
- Asking for it in the first conversation. Earn trust, then propose structure.
- A term that’s too short. If the numbers fail the DSCR test, the seller’s adviser will say no.
- Weak legal drafting. Security, default and handover terms must be written down properly.
- Ignoring regulation. In licensed industries such as health, check the rules in your state or country on who can own and operate the business.
How G&L M&A Advisory helps
G&L M&A Advisory helps owners of $1M+ businesses find sellers who value the right successor and structure deals they can say yes to, combining commercial debt, seller finance and seller rollover as the deal needs. Read the full overview in how to buy a business with no money down.
See if you qualify for an acquisition strategy call.