Generate More Sales From Existing Stock

 Vendor Finance Loan Agreements

Overview

A Vendor Finance Loan Agreement allows the Vendor or Seller of slow or overstocked items the option of being able to make extra sales from their existing stock whilst using that stock to secure their loan agreement with their clients. It’s a Win-Win situation for all parties involved.

Using A Vendor Finance Loan Agreement.

A Vendor Finance Agreement can be used in a couple of different ways. The main idea of a Vendor Finance Loan Agreement is that the Vendor or Seller finances the purchase of a piece of equipment or a piece of stock to their client whilst using that piece of equipment or stock as collateral for the loan agreement. This can be done via a PMSI Security Interest which stands for Purchase Money Security Interest. Your PSMI Security Interest is registered on the PPSR OR Personal Property Security Register thereby maintaining your ownership of the piece of equipment being Vendor Financed ensuring that should the borrower defaults in the payment you are able to repossess the piece of equipment.

If you would like to know more about Personal Property Securities Act in which you register a Purchase Money Security Interest on the Personal Property Securities Register, we have a separate Blog listed in the related blog section on this page.

Now a Vendor Finance Loan Agreement can be used in a couple of different ways. First, it can be used to finance those one or two pieces of equipment that are still sitting in the warehouse that hasn't shifted or end of the line product. Or alternatively, some of our clients use it as their main way of doing business.

Real-Life Example

We have a client who uses our Vendor Finance Loan Agreements to sell, of all things, Vending Machines to their clients.  Their clients actually purchase the Vending Machines over a period of a couple of years, our clients still maintain their ownership of the vending machines as collateral for those agreements, so that if their clients default in payment, they have the option of simply repossessing the Vending Machines. But most importantly their Vendor Finance Agreements are registered on the PPSR OR Personal Property Security Register.

As I mentioned earlier we do have another blog on the PPSA, but essentially by registering on the PPSR the Vendor or the person providing the loan is maintaining absolute security by still retaining ownership of that piece of equipment with the same protection as the banks.

This is without a doubt the most important aspect of using a Vendor Finance Agreement.

The Variables

When it comes to setting up the loan on your behalf the process is straightforward, but as you can appreciate there are several variables. The first one would be the entities involved in the Vendor Finance Loan Agreement. Whether they are a business, company or Trust we need to make sure we have the correct entity details. The second variable would be the interest rate, this includes if you are going to charge an interest rate, what that interest rate might be. You might elect not to charge an interest rate or decide that you are just going to charge a flat fee. It is totally up to the person or entity extending the credit.

Another variable would be the costs. You may decide to include the Vendor Finance Agreement establishment costs into the loan itself, that way minimising any upfront costs to the borrower, and instead spread the establishment costs out over the period of the loan agreement.

Another variable might be the inclusion of a balloon payment at the end of the loan period thereby reducing the monthly loan payments. It is totally up to the parties involved to decide on how they want the loan established.

Loan Repayments

Direct Debits or direct debiting the loan repayments from the borrower’s bank account is another way of trying to ensure the loan progresses smoothly over the period of the loan and helps eliminate defaults in loan repayments which can be debited on a weekly, fortnightly, or monthly basis.

Using electronic signatures when setting up the loan agreement, which means that all parties can sign the loan documentation using their finger on a smartphone or tablet, helps dramatically with the initial setup on the loan documentation.

Loan Management Dashboard

A Vendor Finance Loan Agreement Dashboard which provides access to your Vendor Finance Loan agreement can be accessed at any time, available 24/7. This is where a lender can view your loan repayments and see which payments have been made and which are still outstanding. The Lender can receive automatic notifications of any defaults in loan payments by the borrower. A Vendor Finance Loan Dashboard is the centrepiece of the loan management functionality with various other options available.

A Vendor Finance Loan Agreement Dashboard is where the lender can adjust the Loan Amount, the Loan Period, and even top up the loan. The Lendor simply renegotiates the loan with the borrower. The Lender might decide to extend the Loan Period which can also be done using the Vendor Finance Loan Agreement Dashboard, a new loan would just automatically start. The Lender can even defer payments by adding additional payments to the end of the loan, the Lender can even forgive or cancel the loan. It is totally up to the Lender.

So having a Vendor Finance Loan Agreement Management Dashboard provides complete flexibility not available anywhere else. 

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