How valuations work for business loans

The application went well. The lender liked the business, the documents were in order, and the approval came through subject to a satisfactory valuation. Then the report lands, and the warehouse you thought was worth $1.4m has been valued at $1.15m. Your approved loan just shrank by tens of thousands of dollars, and nothing about your business changed.

That moment catches out more owners than almost any other part of secured borrowing. It helps to know, before the valuer ever visits, how the process works, what the valuer is actually asked to do, and where you have room to influence the result.

Who orders the valuation, and who is it for?

The lender. Even though you’ll almost always pay the fee, the valuation is commissioned by the lender, from a valuer on its approved panel, under the lender’s instructions. Panels are usually made up of established valuation firms, with individual valuers typically holding professional accreditation, commonly through the Australian Property Institute.

This matters for two reasons:

• The valuer works for the lender. Their job is to tell the lender what the property is reliably worth as security, not to help you borrow more. They owe their duty of care to the lender.
• You can’t swap in your own report. A valuation you commission yourself, or one ordered by another lender, usually can’t be used. Some lenders will accept a transfer of a recent report from an approved valuer, but don’t count on it.

There’s a useful protection on the other side. Under the Banking Code of Practice, banks that subscribe must give a small business customer a copy of a commercial or agricultural property valuation the customer has paid for, along with the valuer’s instructions, except once enforcement has started. If your bank hasn’t sent yours, ask for it.

What types of valuation will you come across?

Valuation	How it’s done	Typical use	Watch out for
Automated or desktop	Sales data, records and imagery, sometimes reviewed by a valuer; no visit	Standard residential security for smaller loans	Can’t see renovations or condition, good or bad
Kerbside (drive-by)	Valuer views the exterior from the street and uses sales evidence	Residential security where some confirmation is wanted	Interior improvements aren’t counted
Full inspection	Valuer inspects inside and out, measures, photographs and writes a detailed report	Larger loans, unusual homes, most commercial and rural property	Costs more and takes longer to book
Commercial valuation	Full inspection plus analysis of leases, income and yields	Offices, warehouses, retail and industrial property	Lease terms and vacancy can move the value sharply
“As if complete”	Valuer estimates value once planned works are finished	Construction and development finance	Lender may lend progressively against completed stages

Our glossary entries on desktop valuations and kerbside valuations go further into the shorter formats.

How does the valuer reach a number?

For residential property, the valuer mostly relies on comparable sales: recent sales of similar homes nearby, adjusted for differences in land size, condition, number of bedrooms, outlook and so on.

Commercial property adds an income lens. The valuer looks at:

• The rent, and whether it’s in line with the market
• Lease terms, including how long is left, rent review mechanisms and who pays outgoings
• Tenant quality, since a national tenant on a long lease is more valuable than a vacant shop
• Yields on comparable sales, used to convert net income into a capital value
• Zoning, condition and specialised features that limit who might buy

That’s why two warehouses of the same size on the same street can value very differently. One has a five-year lease to an established logistics company; the other has six months left on a lease to a struggling tenant.

For rural property, valuers also look at water rights, improvements, carrying capacity and access. Business loans against rural property covers how lenders treat that security.

How does the valuation set the loan amount?

The lender multiplies the valuation by its maximum loan-to-value ratio (LVR) for that property type, then subtracts anything already owed on the property.

Here’s an illustrative example. A Melbourne printing business wants to borrow against the directors’ home and the company’s small factory.

	Home	Factory
Owner’s estimate	$1,250,000	$900,000
Valuation	$1,180,000	$820,000
Lender’s maximum LVR (example)	80%	65%
Maximum total lending	$944,000	$533,000
Existing mortgage	$520,000	$0
Available for the new loan	$424,000	$533,000

Had the directors relied on their own estimates, they’d have expected about $1.105m in combined capacity. On the valuations, it’s $957k. The gap comes from two lower-than-hoped valuations and a lower LVR on commercial property, which is common because commercial property usually takes longer to sell and attracts fewer buyers.

You can run your own numbers in the LVR calculator and property equity calculator. Use a conservative estimate, not the best sale in the street.

Why isn’t my council or Valuer-General value enough?

Rates notices and land tax assessments show a value, so it’s natural to wonder why the lender can’t just use it. In most states, that figure is a statutory land value: in New South Wales, for example, the Valuer General’s land value covers the land only, not the buildings or improvements on it, and is set as at 1 July using mass valuation of similar properties rather than an inspection of yours.

It can be a useful sense-check, especially for vacant land, but it isn’t designed to show what your property would sell for as security, and lenders don’t rely on it.

What can you do to help the valuation?

You can’t direct the valuer, and trying to pressure one will backfire. But you can make sure they have everything they need.

1. Provide accurate access details. A contact who answers the phone and can meet the valuer quickly.
2. Have the property presentable. Tidy, accessible, with any defects you know about disclosed.
3. Prepare a short information sheet. Recent renovations with dates and costs, approvals and certificates, land size, and any unusual features.
4. For commercial property, supply the leases. Current lease, any variations, rent roll and outgoings. Missing lease information often leads to a conservative figure.
5. List relevant comparable sales. If you know of recent nearby sales the valuer may not have found, provide the address, date and price. Comparable evidence is far more persuasive than opinion.
6. Flag anything time-sensitive. If a new lease is about to be signed or a development approval has just been granted, provide the documents.

Thinking about borrowing against property and want a realistic view first? Ask us for a reality check and a specialist will run through likely figures with you before any valuer is booked.

What if the valuation comes in low?

It happens often, and it doesn’t always mean the end of the loan.

Ask for a review, with evidence. Most lenders will refer the report back to the valuer if you supply specific facts they missed or recent comparable sales they didn’t use. “I think it’s worth more” won’t move it; three recent sales of similar properties might.

Consider the options if it doesn’t change:

• borrow less and fund the difference from cash flow
• add a second property as security
• contribute more of your own money to a purchase
• look for a lender with a higher LVR for that property type, which may come at a higher total cost
• for short-term needs, consider a second mortgage or caveat loan behind an existing first mortgage

If the bank asked for more security than you have, bank wants more security than you have walks through other routes. And remember: a lower valuation on one lender’s panel doesn’t bind another lender, though valuers often reach similar figures from the same sales evidence.

Do lenders value things other than property?

Yes, depending on the loan.

• Equipment and vehicles. New assets are usually valued at the supplier’s invoice. Used, specialised or high-value machinery may need an independent valuation, and the lender considers resale value, not just purchase price.
• Stock. Lenders funding against inventory may apply a heavy discount to account for what it would fetch in a quick sale.
• Receivables. Invoice financiers effectively value your debtor book by its age and the quality of your customers, advancing a portion of approved invoices.
• Whole businesses. When you’re buying a business, lenders review the earnings and may want an independent business valuation, but they usually lend against cash flow and tangible security rather than goodwill alone. Business acquisition loans covers how that works.

Know your security before the valuer does

A valuation can feel like a test you can’t study for. But knowing how the figure is reached, what the lender will do with it and how to respond if it’s short puts you in a much stronger position, and helps you pick a lender whose limits fit your property in the first place.

When you’re ready, tell us what you have and what you need. Our enquiry form is around a minute’s effort, and filling it in won’t register on your credit file. We don’t pass your details on to lender after lender, so there’s no stream of calls to dodge. A specialist reads through your property and business details and phones you to talk realistic numbers. Please give us honest estimates of value and what’s owing; the closer they are to reality, the better our first suggestion will be.

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