Key takeaways
- The ratio compares the loan amount with the value of the security property, so a change in either number changes the result.
- Equity Tap's facilities are business-purpose and property-secured, and residential or commercial real estate may be considered as security.
- LVR is not the only factor. The exit plan and the whole scenario also matter.
- Prepaid interest is not waived. It affects total cost and net proceeds.
- It helps to compare net cash received, total repayable and what happens if the exit slips.
What does LVR mean on a business loan?
LVR, or loan-to-value ratio, expresses a loan as a percentage of the value of the property that secures it. A lender can use it as a quick way to see how much security stands behind a facility, though it never tells the full story.
This article looks at business-purpose, property-secured lending, where a commercial or residential property supports a facility taken out for business reasons. Equity Tap lends in this way, with business-purpose facilities secured by property. For a wider explainer, see the guide to loan to value ratio for business loans.
How is LVR worked out, step by step?
The calculation is simple in concept: take the loan amount, compare it with the property value, and express the result as a percentage. What goes into each side depends on the lender's current policy.
- Identify the loan amount. This is the amount being borrowed. Depending on how the facility is structured, interest or other costs added into the loan may form part of the amount considered. The treatment depends on the lender's policy.
- Identify the property value. This comes from the valuation or assessment the lender relies on for the security property.
- Compare the two. The loan amount is set against the property value and shown as a percentage.
- Re-check if anything changes. A different property value or a different loan amount produces a different ratio.
No two scenarios are the same, so a ratio that looks acceptable to one lender may be viewed differently by another.
How is the property value assessed?
Lenders generally rely on a valuation or assessment of the security property. The method used depends on the lender's own policy.
Equity Tap considers residential or commercial real estate as security. Whatever the property type, a lender may look at several features when forming a view:
- the type of property
- its location
- its condition
These can affect how a lender sees the security. There is no universal threshold that applies everywhere, and it is wise to treat any quoted "typical" limit with caution. Details depend on the lender's current policy. For commercial security in particular, the page on private commercial property loans gives more background.
What else do lenders look at besides LVR?
LVR is a part of the picture, not the sole factor. A lender looks at the whole scenario.
The exit plan. How the facility will be repaid matters. Exits can include sale, refinance or incoming business funds.
Credit history. Equity Tap does not run a credit check when someone enquires or at initial assessment. Past defaults, arrears or a low credit score are considered in the context of the whole scenario. That does not mean any particular outcome is assured. Eligibility depends on the lender's assessment.
The borrower. Equity Tap considers micro businesses, sole traders and larger Australian companies.
How can prepaid interest change the numbers?
Prepaid interest can change the loan amount, and so the ratio and the cash the borrower actually receives.
For eligible facilities, up to six months of interest may be prepaid into the loan, so there are no scheduled payments during that period. Interest is not waived. It affects total cost and net proceeds.
In general terms, when interest and costs are built into the loan, the amount considered for LVR can be larger than the cash that reaches the borrower. A reader weighing a facility may therefore want to look at the net amount received alongside the ratio. Equity Tap's facilities range from $50,000 to $5 million, over one to twelve months. Any specific figures for a scenario depend on the lender's current policy and assessment.
Who can this suit, and when is it not the answer?
Property-secured business lending may suit business owners who hold suitable real estate and have a clear plan for repaying the facility. That plan might be a sale, a refinance or incoming business funds. The page on secured business loans explains the general approach.
It may not be the answer in some situations, described here in general terms:
- There is no property to offer as security.
- The exit plan is unclear or depends on events that could easily slip.
- The funding need is small or short-lived enough that a different arrangement could meet it.
- The total cost, including prepaid interest, would outweigh the benefit of the funds.
These are general points, not personal advice. Independent guidance is available from Moneysmart and business.gov.au.
What should be compared beyond the LVR figure?
A low or high ratio does not show the full cost of a facility. These points are worth setting side by side:
| What to compare | Why it matters |
|---|---|
| Net cash received after fees and prepaid interest | Shows the amount that actually reaches the borrower |
| Total repayable | Shows the full cost over the life of the facility |
| What happens if the exit slips | Shows how the facility behaves if a sale or refinance takes longer than planned |
| Timing | Settlement in "as little as 24 hours" describes an eligible, straightforward loan after approval, documents and final checks. It is not a promised timeframe |
Eligibility and timing always depend on the lender's assessment of the individual scenario.
What is the next step?
If a property-backed facility is on the table, it can help to have the property details and a clear exit plan ready. When ready, start your application to begin an enquiry. It takes a few minutes to start, and eligibility depends on the lender's assessment.
No obligation. Eligibility is subject to assessment.
This is general information only and does not take into account your objectives, financial situation or needs. All applications are subject to lending criteria, assessment and approval.
Frequently asked questions
What does LVR mean on a business loan?
How is the property value worked out for LVR?
Does prepaid interest change the amount I end up with?
Is a credit check done when I enquire about a property-secured business loan?
What should I compare other than LVR when looking at a business loan?
General information only, not legal, tax or financial advice.