Vendor Financing - Loans
Vendor financing refers to financing provided by a vendor to a customer on the condition that the customer uses the products and/or services of the vendor on an exclusive basis. The interest rate on vendor loans is usually higher than the rate charged by commercial banks, but the terms are almost always more favorable to the customer/borrower.
Vendor financing usually cements the relationship between the vendor and the customer. Payments are usually deferred in order to make it easier for the customer/borrower to collect revenue before payments are due on the vendor loan. By offering vendor financing, a vendor has a competitive advantage over other vendors that supply the same or similar products and/or services.
In the event of a monetary default, a non-recourse loan allows a lender to seize only the collateral set forth in the loan agreement, even if its value is less than the amount owed. A recourse loan allows a lender to pursue income and assets other than the collateral set forth in the loan agreement if the collateral is insufficient to repay the debt.