Vendor Financing

A loan from one company to another which is used to buy goods from the company providing the loan. In this way, the vendor increases sales, earns interest, and may sometimes also acquire an interest in the customer. This increases the risk profile of a company if it is carried out on a large scale, since many companies do not have the skill to conduct credit analysis. Large, creditworthy buyers are unlikely to make use of this arrangement, since they will be able to borrow money at lower rates from other sources.