FOR RETIRING FARMERS AND THEIR FAMILIES
Vendor finance: selling your farm when the buyer can't get a bank loan
By Sam Marwood
Sometimes the right buyer for your farm is someone the bank won't lend to.
They might know the work inside out. But they don't have the deposit a bank asks for, or their income history doesn't fit what a bank looks for.
Vendor finance is one way through. Ageing on Farm, about staying on your farm on your own terms, has it as the fourth of seven options.
How vendor finance works
You sell the farm and take a deposit up front. Then you lend the buyer the rest of the price yourself, and they pay you back over time, on terms the two of you settle.
The buyer gets the use of the land straight away. You get the deposit, then interest payments, usually at a rate above what a bank would charge, because you're carrying more risk.
It lets you sell to someone who wouldn't qualify for a bank loan.
Be clear on one thing: this is a sale. The farm becomes theirs, and you become the lender.
Why the relationship matters most
Vendor finance works best when there's already a relationship between the buyer and the seller. You know each other. You trust each other.
The formal agreement protects you both. But the relationship is what makes it work.
It also means you'll know who's looking after the farm.
If the buyer can't keep paying
This is the risk to think hardest about. If the buyer stops making payments, you may have to take the farm back and start again. That's hard, both legally and emotionally.
An agreement can set a date by which the buyer has to move the loan to a bank or another lender, or sell the farm and repay you from the proceeds. Ask your lawyer which protections suit your situation.
The benefits
- It gets a buyer onto the farm when a bank won't lend to them.
- You get a deposit, then interest for as long as they pay.
- You're dealing with someone you know and trust.
- The buyer has every reason to make the farm work.
- It can be set up to suit both sides' tax situations, with good advice.
The drawbacks
- Your money stays in the farm until the loan is paid off. If you need a lump sum, this won't give you one quickly.
- Even at a higher rate, the interest may still earn you less than selling outright and putting the money to work elsewhere.
- It needs solid legal agreements, from a lawyer who knows both farm sales and vendor finance.
- You carry the risk that the farm's value falls during the term.
Income over time, and a buyer you know
Vendor finance swaps a lump sum for income over time, and a stranger for someone you know.
The full guide, Ageing on Farm, is free at cultivatefarms.com/resources.
You can build your own plan at cultivatefarms.com/plan.