Borrowing to buy an agency, rent roll or book? Give your lender an independent valuation it can follow.

A finance valuation gives your lender an independent market value of the agency, rent roll or client book you are borrowing to buy, at a stated date, with the income, retention risk and deal terms set out so a credit team can follow them. Ask your lender in writing what it requires and send us that request; we confirm in writing before we start whether the report can be scoped and addressed to it. The fee is set by the revenue of what you are buying: $1,495 + GST under $2 million, delivered in 2 business days. Delivery time starts once payment and all required information have been received.

What should you ask your lender first?

business.gov.au suggests buyers work out the current value of a business before committing, and notes they may want a professional valuation of its assets and liabilities. When a loan is involved, the lender's requirements shape that valuation. Each lender sets its own, and we make no claim about which lenders will rely on a particular report, so ask your lender or finance broker to put its requirements in writing.

• ·The basis of value it wants, usually market value
• ·The valuation date, and how recent the report has to be at settlement
• ·What the report must contain, such as a cross-check method or a sensitivity to client losses
• ·Who the report must be addressed to, and whether the lender must be named as able to rely on it
• ·Whether it wants the whole agency valued, or just the rent roll or book being bought
• ·Its deadline for credit approval

Market value or the price you agreed?

These can differ, and a lender will want to know which it is reading. Market value is what a hypothetical willing but not anxious buyer and seller would agree at arm's length, fully informed. The ATO's guidance explains that it does not reflect advantages of value to one specific purchaser that other buyers do not have.

The price you agreed may include value that is special to you: spare capacity in your team, overlap with suburbs or insurance lines you already service, or savings from combining two offices. That can be a sound reason to pay it, but it is not market value. Where the price is above our view of market value, the report says so, and your lender decides what that means for the loan.

What does the report set out for each kind of agency?

A lender lending against a client book is relying on income that has to keep arriving. For each agency type, the report sets out the recurring income, how secure it is, and what it costs to service. For a rent roll: management income by property, fee rates, arrears, vacancy and the managements gained and lost. For an insurance book: brokerage income and fees by client and insurer, renewal history and concentration. For a mortgage trail book: trail income by lender, loan balances and run-off. For an advice practice: ongoing fee clients and how long they have stayed. For marketing, recruitment and travel businesses: retainers, contractor margin or corporate accounts, contract terms and the share of revenue from the largest clients.

How do retention clauses and deferred payments show up?

Agency deals often hold back some of the price under a retention clause, reduce it for clients lost after settlement, or pay some of it later. A lender will want to know how much is payable at settlement, how much later and on what conditions, and what happens to the loan if clients leave during the retention period. The report can set out the headline price, the amount payable at settlement and the effective price after the terms, alongside market value. See Earn-outs, retention clauses and clawbacks in agency deals.

What does the report include?

The structure follows what the ATO expects a valuation report to cover for tax purposes, which also gives a credit team what it needs to test the figure: the purpose and scope, what was valued, the information relied on and its source, the valuation date, the definition of value, the methods with reasons and a cross-check, the assumptions and risks, any information that was not available, and a declaration of independence and conflicts. A suitably qualified business valuer signs it, and it follows the guidelines of APES 225 Valuation Services.

Will the report arrive before finance approval?

Delivery is 2 business days for revenue under $2 million and 3 business days for $2 million to $10 million. Above $10 million, the fee is quoted in writing and the delivery date agreed before commencement. Delivery time starts once payment and all required information have been received. Tell us your lender's deadline when you enquire, and send the seller's information as early as you can: the report can move no faster than the records arrive.

What does a finance valuation cost?

The fee is fixed in writing before work starts and is banded on what you are buying, not on the loan amount.

The band is set by the annual revenue, excluding GST, of what is being valued: a rent roll's annual management income when the rent roll is valued on its own, an insurance or mortgage book's annual recurring income when the book is valued on its own, or the agency's total annual turnover when the whole agency, or shares or units in it, are valued. A business on exactly $3 million is Medium, and one on exactly $10 million is Large. Add-ons: +$495 per retrospective (past) valuation date, and +$795 per additional entity. Delivery time starts once payment and all required information have been received.