Glossary · underwriting

Appraisal

Also called valuation, appraisal report, collateral valuation.

An independent written opinion of value on collateral, ordered by the lender at your cost, and the number the advance is actually sized against.

Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.

What it means

Whatever you paid for an asset and whatever you think it is worth, the lender lends against an appraised figure produced by someone it selected. Independence rules mean you generally cannot supply your own appraiser or your own report.

By asset type

Real estate.A state-certified appraiser working to USPAP standards. Whether a full appraisal or a lighter evaluation is required depends on transaction size, program rules and the lender's policy. SBA real estate loans have their own requirements — read the current SOP.
Equipment.Desktop, drive-by or full inspection, often by a certified machinery and equipment appraiser. Age, hours, maintenance records, and whether a secondary market exists all move the number.
Inventory.Appraised for asset-based lending, usually at net orderly liquidation value, with a recovery percentage by category.
The business itself.A business valuation on a change of ownership, which is a different discipline again.

The value definitions

A report states which standard of value it used, and the standards are not close together. Market value in continued use, orderly liquidation value and forced liquidation value can differ by more than half on the same machine. Lenders advance against the liquidation figures, because liquidation is the scenario in which the number is tested.

Cost, timing and entitlement

You pay, usually up front or at closing, and the fee is not refundable if the deal dies. The report is addressed to the lender. Whether you receive a copy depends on the lender's policy and on rules that vary with the collateral and the program, so ask before you pay.

Where this one catches people

The appraisal is ordered after you have committed and paid, and it can change the deal without anyone being at fault. A low value on real estate raises the equity you must inject or shrinks the loan. A low orderly liquidation value on equipment cuts the advance. On an acquisition, a valuation below the agreed price forces a renegotiation with the seller, a bigger injection, or a seller note.

Ask one question before you pay the fee, and get the answer in the term sheet or commitment letter: what happens if the value comes in below the assumption. Does the lender re-size, require additional equity, require additional collateral, or withdraw? A lender that will put its response in writing has told you something useful about the whole file.

Where you will meet this term

Term Loan SBA Loan Equipment Financing Asset-Based Lending

Read next

Advance rateThe share of an asset's eligible value a funder will put up front, used in factoring, asset-based lending and… Closing costsEverything deducted or payable at funding beyond the financing cost itself, from origination and documentatio… CollateralProperty a lender can take and sell if the debt is not paid, identified in the security agreement and made ef… Commitment letterA lender's written offer to fund on stated terms, subject to conditions, issued after credit approval and bef… Fair Market Value (FMV)The price a willing buyer and willing seller would agree, neither compelled and both informed — and, in an eq… Field examA structured review of a borrower's receivables, payables, inventory and books, performed before an asset-bas… GoodwillThe part of an acquisition price that exceeds the fair value of the identifiable assets acquired — the intang… Liquidation value (OLV / FLV)What collateral realistically fetches in a distressed sale after costs — the number that actually sets advanc… Loan-to-value (LTV)The loan amount as a percentage of the collateral's appraised value — the lender's measure of how much cushio… SBA 504 loan (504)A three-part structure for owner-occupied real estate and long-life equipment: a bank first mortgage, a fixed…

Appraisal — common questions

What does appraisal mean?

An independent written opinion of value on collateral, ordered by the lender at your cost, and the number the advance is actually sized against.

Where does appraisal catch people out?

The appraisal is ordered after you have committed and paid, and it can change the deal without anyone being at fault. A low value on real estate raises the equity you must inject or shrinks the loan. A low orderly liquidation value on equipment cuts the advance. On an acquisition, a valuation below the agreed price forces a renegotiation with the seller, a bigger injection, or a seller note.

Is appraisal the same as an interest rate?

Appraisal is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.

Which products does appraisal apply to?

Term Loan, SBA Loan, Equipment Financing, Asset-Based Lending.

Is there a worked example of appraisal?

Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.

What else should I read alongside appraisal?

Advance rate, Closing costs, Collateral, Commitment letter, Fair Market Value.

Has this definition been checked?

Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.

Is this legal advice?

No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.

Can I suggest a term?

Yes — [email protected]. The glossary grows from what people are actually shown in contracts.