Why a lender values your equipment at half what you think

You have a machine you paid $180,000 for three years ago. You have watched comparable ones sell, and you are confident it is worth around $145,000 today. You ask to borrow $100,000 against it, which feels conservative, and the answer comes back at $95,000 with a tone suggesting you were lucky to get that.

Nothing has gone wrong and nobody thinks you are exaggerating. The lender is simply not using the number you are using, because it is answering a different question: not what the machine is worth, but what it would realise if they had to sell it in circumstances neither of you wants.

There are three values, not one

Every asset has a ladder of values, and which rung a lender stands on depends on how badly the day is going when they need the money back.

There are two more rungs worth knowing. Replacement value is what it would cost to buy an equivalent machine new, which is above market and is an insurance number rather than a lending one. Written-down book value is an accounting figure driven by a depreciation schedule, and it may bear no relationship to what anyone would pay.

If someone quotes you a valuation without saying which basis it was prepared on, the number is close to meaningless. The gap between the top and the bottom of that ladder on a single machine is routinely a factor of two.

What that does to a loan

Take the excavator above. Market $145,000. A dealer says $110,000 at auction with sixty days to sell. Forced, on a bad day, $85,000. Now run your $100,000 request against each.

You were looking at 69% and thinking it was conservative. They were looking at 118% and thinking about what happens on the day they need to act.

And then costs come off

Even the forced sale figure is not what a lender recovers. Repossession has to be paid for, the asset has to be stored, and someone has to sell it.

• Repossession and transport, which on plant can run into thousands before anything is sold.
• Storage, monthly, for as long as it takes.
• Selling costs, including auction commission or agent fees.
• Legal costs where possession is contested.
• Anything ranking ahead of them, which is the one most people have not considered.

That last point matters more than the rest combined. Unpaid tax and employee entitlements can rank ahead of a secured creditor in an insolvency, and a lender assessing security is assessing what is left after those are met, not what the asset fetches.

What you can actually do about it

• Ask what basis they are lending against before you argue about the number. If they are on orderly liquidation and you are on market, you are not disagreeing, you are discussing two different things.
• Get a written valuation on the right basis from someone the lender recognises. A dealer's letter about market value does not answer the question they are asking.
• Understand that new assets lend better than used ones, and by a wide margin. That is not snobbery, it is that a new machine has a deeper resale market and a more predictable curve.
• If the asset will not carry the borrowing, look at what else can. Property security changes the arithmetic entirely, and so does a shorter term that keeps the debt below the curve.
• Check what is registered against the asset already. A prior interest you had forgotten about will surface during the assessment, and it is better if you raise it.

The useful reframe

A lender is not valuing your business or doubting your judgement. It is answering one narrow question: if everything goes wrong, what does this asset turn into, and how fast? Every conservative number in the assessment follows from that.

Once you can see the ladder, the conversation gets much easier, because you can ask which rung they are standing on and negotiate about the right thing.