If there is one number that matters more than any other in private lending, it is the loan-to-value ratio — commonly referred to as LVR. This single metric shapes the entire transaction: how much you can borrow, the interest rate you will pay, the lender's appetite for the deal, and the margin of safety that protects both parties if things do not go to plan.
For borrowers and brokers operating in Australia's commercial finance market, understanding how LVR works in private lending — and how it differs from bank lending — is fundamental to structuring deals that get approved and settled efficiently.
What Is Loan-to-Value Ratio?
The loan-to-value ratio expresses the loan amount as a percentage of the property's assessed value. The formula is straightforward:
LVR = (Loan Amount / Property Value) x 100
For example, if you are borrowing $700,000 against a property valued at $1,000,000, the LVR is 70%. The remaining 30% — the gap between the loan and the property value — is the borrower's equity and the lender's buffer against loss.
Why LVR Matters in Private Lending
In bank lending, LVR is one of many factors in the credit assessment. Banks also scrutinise income, employment history, credit scores, and serviceability ratios. In private lending, the security is the primary focus, and LVR is the measure of how much risk the lender is taking on that security.
A lower LVR means:
- More protection for the lender: If the borrower defaults and the property must be sold, a lower LVR provides a larger buffer to recover the outstanding loan plus costs.
- Better terms for the borrower: Lenders reward lower-risk deals with more competitive rates and greater willingness to proceed.
- Faster approvals: A deal at 50% LVR is inherently less risky than one at 75% LVR, and most private lenders will assess and approve lower-LVR deals more quickly.
Typical LVR Ranges in Australian Private Lending
Private lenders in Australia generally operate within the following LVR ranges:
- Up to 65% LVR: The sweet spot for most private lenders. Deals at this level attract the broadest range of lender interest and the most competitive pricing.
- 65% to 75% LVR: Still common but may attract higher rates or additional conditions. The lender's margin of safety is thinner, so the deal needs to be strong in other respects — particularly the exit strategy and the quality of the security.
- Above 75% LVR: Less common in first mortgage private lending. Some lenders will go higher for exceptional deals, but borrowers should expect premium pricing and more stringent conditions.
At Esteb Capital, we provide first mortgage lending from 10% for commercial and business purposes across Australia. The LVR we are comfortable with depends on the quality of the security, the strength of the exit strategy, and the overall risk profile of the transaction. Every deal is assessed on its merits.
How Property Value Is Determined
LVR is only meaningful if the property value is accurate. In private lending, value is typically established through:
Independent Valuation
Most private lenders will commission a registered valuer to provide an independent assessment of the property's market value. This is the most reliable method and is standard practice for first mortgage lending. The cost of the valuation is paid by the borrower as part of the overall legal costs borne by the borrower in private lending transactions.
Desktop or Kerbside Valuation
For lower-LVR deals or well-known property types in established locations, some lenders may accept a desktop valuation — an assessment based on comparable sales data without a physical inspection. These are faster and cheaper but less precise. They are more commonly used for preliminary assessments than for final credit decisions.
Borrower-Provided Evidence
When presenting a deal to a private lender, borrowers and brokers should provide their own supporting evidence of value — recent comparable sales, rental income data, or a recent valuation commissioned for another purpose. This helps the lender assess the deal quickly and reduces the chance of surprises when the formal valuation is completed.
LVR and Your Exit Strategy
The exit strategy and LVR are closely linked. If your plan is to refinance into a bank, you need to understand the bank's LVR requirements for the type of property and borrower involved. For example:
- A bank may lend up to 70% LVR on a standard commercial property
- Specialist properties (hospitality, childcare, rural) may attract bank LVR limits of 50-60%
- Residential investment properties may allow bank LVRs of up to 80%
If you borrow at 70% LVR from a private lender and your exit plan is to refinance with a bank that only lends to 65% on that property type, you will need to either pay down the loan or demonstrate sufficient value uplift to bring the LVR within the bank's parameters. Plan for this from day one.
Strategies to Improve Your LVR
If your deal is borderline on LVR, consider these strategies:
Contribute More Equity
The most direct approach. Reducing the loan amount lowers the LVR and improves your negotiating position. Even a modest additional equity contribution can shift a deal from marginal to comfortable.
Offer Additional Security
If you own other unencumbered or lightly encumbered properties, offering them as additional security can reduce the effective LVR across the combined portfolio. This gives the lender more comfort and may unlock better terms.
Demonstrate Value Uplift
If the property is being purchased below market value — for example, from a motivated vendor or at auction — present evidence that the true market value is higher than the purchase price. If you plan to add value through renovation or re-leasing, provide a clear analysis of the expected after-renovation value and how it changes the LVR equation.
Negotiate the Purchase Price
A lower purchase price directly improves the LVR if you borrow the same amount. In many cases, negotiating even a small price reduction can make the difference between a deal that a private lender will fund comfortably and one that stretches the LVR too far.
LVR Is Not the Only Factor
While LVR is central to private lending decisions, it is not assessed in isolation. A strong deal at a slightly higher LVR may be approved ahead of a weaker deal at a lower LVR. Other factors include:
- Quality and location of the security property
- Strength and credibility of the exit strategy
- Borrower's track record and transparency
- Purpose of the loan and overall deal logic
- Market conditions in the property's location
Private lenders like Esteb Capital assess the whole picture, not just a single number. That said, coming to the table with a well-considered LVR and strong supporting evidence will always work in your favour.
Getting Your LVR Right from the Start
The best time to think about LVR is before you sign a contract or commit to a deal. Understanding how much a private lender will advance — and on what terms — allows you to structure your acquisition, plan your equity contribution, and set realistic expectations for the entire transaction.
If you are unsure what LVR is achievable for your deal, speak with your broker or contact Esteb Capital directly. We assess every deal individually and can give you an indication of our appetite and terms early in the process — before you commit to anything.