Commercial Property Loans Against a Going Concern Valuation
Commercial Loan on a Going Concern | Switchboard Finance
Commercial Property Finance
Going Concern Valuation · Commercial Property Loan · Freehold and Leasehold
Commercial Property Loans Against a Going Concern Valuation
A going concern valuation values the property and the trading business as one asset, not bricks and mortar alone. For a pub, motel or park, that single figure is what a lender actually funds against. Here is how the valuation is built, and where it makes a commercial property loan stronger or trickier.
Quick Answer
A going concern valuation values the property and the trading business as one asset, so a commercial property loan is sized against the combined figure, not the real estate alone. It is the standard way lenders assess pubs, motels and parks.
What a going concern valuation actually values
A going concern valuation values the property and the business as one asset. For a licensed venue, the freehold, the fitout, the trading history and the income mix are read together, not as separate line items. That is the core of what a going concern is: an operating business that happens to own, or lease, its premises.
From the underwriter's seat, this is the first thing that sets a venue deal apart from an ordinary commercial purchase. You are not lending against four walls, you are lending against earnings tied to a location and a licence. Our explainer on how a going concern valuation is set walks through that earnings read.
A bare shopfront is valued on rent and comparable sales. A going concern is valued on what the business earns, which is why two pubs on the same street can carry very different price tags and very different commercial property loan structures. A freehold going concern also carries the land, so it secures differently again.
How the going concern figure sets your loan
Lenders size the loan from the going concern valuation, and an instructed valuer works off adjusted net profit, the venue's earnings normalised for one-off costs and a market wage for the owner. The valuer is usually a member of a professional body such as the Australian Property Institute, and that report is what the credit team leans on.
Gaming revenue and occupancy sit in the assessment, alongside the lease or freehold tenure and the quality of the financials. What a lender weighs first on a venue is whether those earnings will hold, not the postcode.
As a rule of thumb, going concern motels and parks are typically financed around 60 to 70% of the going concern valuation, indicative and varies by lender. A freehold going concern with a strong, documented trade sits at the upper end; a leasehold, or a thinner trading record, sits lower.
Supporting security, such as residential property or another commercial asset, can lift the effective funding without pushing any single security past a comfortable level. Single securities geared hard usually move from major banks to non-bank lenders or Tier-2 specialists.
Where this is a stronger fit, and where it gets tricky
A going concern loan is a stronger fit when the trade is documented and the tenure is clean. It gets tricky when the numbers or the lease are hard to read.
Most venues sit somewhere between the two profiles. The job is to move the file toward the stronger-fit column before a lender sees it, which usually means clean financials and clarity on the leasehold or freehold tenure.
A going concern purchase, start to finish
Here is how a going concern purchase tends to come together from a financing point of view.
A going concern valuation is the spine of venue lending. Value the property and the business as one, size the loan off adjusted net profit, and use supporting security so no single asset carries too much. Freehold tenure and a documented trade do most of the heavy lifting; thin records and short leases are where deals slow down.
Key takeaway: on a going concern, the trade is the asset, so get the financials clean before you order the valuation.Frequently Asked Questions
A going concern valuation values a property and the trading business that operates from it as a single asset, rather than valuing the real estate on its own. For a pub, motel or park, the valuer reads the adjusted net profit, the income mix and the tenure together. You can read the detail in our going concern glossary entry and see how it shapes a commercial property loan.
Borrowing against a going concern valuation is set as a percentage of the combined property and business figure, commonly around 60 to 70% for going concern motels and parks, indicative and varies by lender. A freehold going concern with a strong trade can sit higher, while leasehold or thin records sit lower, and supporting security can lift the effective funding. Our commercial property loans page covers how these structures are built.
A freehold going concern includes the land and building as well as the business, while a leasehold going concern is the business plus the right to occupy under a lease. Tenure changes the assessment, because freehold offers stronger security, whereas leasehold is financed against the lease term and usually needs the landlord's consent. Our freehold going concern entry covers the detail.
Gaming revenue does count in a going concern valuation, because the valuer assesses what the business actually earns, and for many licensed venues the gaming income is a major part of the trade. Occupancy and food and beverage takings sit in the same assessment. For how venue security is weighed, see our note on a second mortgage versus a commercial property loan on the premises.
A commercial property loan can fund the purchase of a pub or motel, and when the price reflects the trade it is usually assessed on a going concern valuation rather than bricks and mortar alone. Lenders look at the adjusted net profit, the tenure and any supporting security, and single securities geared hard often move to non-bank lenders or Tier-2 specialists. Compare the approaches in our commercial property loan rates and lease-doc commercial property loan guides.
FBAA Accredited
