Business valuations for lending enquiries | IBV™

Provide the proposed finance purpose, borrower structure, financial records and a description of assets involved. Existing debt, guarantees and intercompany arrangements can affect the commercial assessment. Legal advisers and the lender should clarify security rights and priority, as a valuation engagement does not certify the enforceability or ranking of a proposed security interest over the business or its assets.

The deliverable should explain the subject, basis, date, evidence and limitations, with any lender reliance separately confirmed. Specialist property or equipment reports may be needed and should retain their own responsibilities and scope. Information supplied by management and assumptions about future trading should be transparent so the intended user understands what has, and has not, been independently assessed.

The valuation does not guarantee lending approval, borrowing capacity or a lender’s acceptance of the report. Credit policy, serviceability and security decisions remain with the financier. Where premises form part of the enquiry, business and property valuation coordination can help align separate instructions, but the lender should approve the proposed approach before either valuation is commissioned.

Start with the operating cash cycle rather than assuming an earnings multiple describes repayment capacity. Show tax payments, necessary equipment expenditure, seasonal working capital and distributions separately. Identify which cash movements are discretionary and which are required to keep the business operating. A profitable borrower can still experience a funding shortfall if customers pay well after suppliers and employees must be paid.

Construct monthly scenarios around the periods of greatest cash demand. A year-end balance can conceal a large intra-year borrowing requirement. Government valuation guidance identifies cash-flow statements, debts and other financial information as useful evidence. 1 For a lending-related assessment, connect those records to the proposed borrowing purpose instead of presenting annual profit as cash that is always available for interest and principal.

Prepare a schedule linking each material asset to its legal owner, location and relevant finance arrangements. A group may trade under one name while property, equipment and customer contracts sit in different entities. The borrower may use assets it does not own, and a consolidated balance sheet may obscure that distinction. Flag leased equipment, related-party loans and assets subject to third-party claims for specialist review.

ASIC distinguishes secured and unsecured creditors and explains that priority rules matter where multiple security interests affect the same personal property. 2 A value attributed to an asset does not establish how much is available to a particular lender. Legal advisers must address rights, ranking and enforcement; the valuation should identify the ownership and security assumptions supplied to it, not certify those assumptions as legal facts.

Select stresses that match the business: slower customer payments, loss of a major contract, a margin squeeze or higher essential staffing costs. Explain the sequence of effects. For example, lower sales may reduce profit while leaving inventory commitments and fixed rent largely unchanged. A simple revenue percentage reduction can miss the resulting cash pressure.

Present the consequence for earnings, liquidity and assessed value separately. Those measures can deteriorate at different speeds. Identify assumptions that management could realistically influence, such as discretionary distributions, without assuming that suppliers will extend credit or customers will accept price increases. Where a recovery premise is instructed, state the separate evidence and specialist input needed to assess it credibly.

The practical result should be an intelligible risk discussion for the intended lender and borrower. A strong business value does not offset every weakness in repayment cash flow, and additional security does not make an unsustainable operating plan viable. Keep covenant definitions and lender calculations separate from valuation measures unless their reconciliation is expressly included. That prevents a familiar term such as earnings or coverage from appearing to have the same meaning across documents when the underlying definitions differ.

See our fixed-fee valuation packages and confirm the scope and fee before commissioning work. Confirm the purpose, intended users, information requirements and inclusions in a written engagement before work begins. Calculated Value and Limited Scope delivery is 5–7 business days from complete financial information and a signed engagement. Full Conclusion timing is confirmed individually in the engagement letter. Specialist requirements or changes to the instruction may affect suitability and timing; confirm these before relying on an external deadline.