What is a NOLV Valuation? - Stewart and Smith Advisory

NOLV stands for Net Orderly Liquidation Value. It is a specific type of valuation applied to your business assets (most commonly inventory and equipment) by lenders, and it differs significantly from the general book value or even Fair Market Value (FMV).

The Definition

NOLV is an opinion of the estimated net cash amount a business asset would bring if it had to be sold in an orderly but motivated sale, after deducting all costs of the sale.

The “Net” Calculation

The “Net” component is where the conservatism comes from. The valuation takes the gross sale estimate (OLV) and subtracts typical liquidation costs, which can include:

Auctioneer/Brokerage Fees and Commissions
Advertising and Marketing Costs
Storage and Security Costs
Dismantling, Rigging, and Transportation to the sale site
Legal and Administrative Fees

The Importance for Finance

NOLV is the bedrock for calculating your Borrowing Base in Asset-Based Lending (ABL). The lender will set your loan limit as a percentage of the NOLV.

Example: A lender determines your machinery has a NOLV of $500,000. If their maximum advance rate is 80%, your maximum loan collateral value for that asset is $400,000 ($\$500,000 \times 80\%$).

The NOLV Valuation Process: What SMB Owners Should Be Mindful Of

As an SMB owner applying for finance that is secured by your assets, the NOLV valuation is a critical due diligence step. You should be prepared for the following process:

1. Preparation and Access

The lender will appoint an independent, external valuation firm.

Be Ready: The valuer will need complete access to your premises, including warehouses and production facilities. You must provide detailed, reconciled listings of all assets, serial numbers, purchase dates, and maintenance logs.
Asset Categorisation: The valuer will focus heavily on saleable assets. They often disregard Work-in-Progress (WIP) inventory due to its limited standalone value.
Condition Matters: Assets that are well-maintained, modern, and in good working order will attract a higher NOLV percentage than obsolete or poorly maintained items.

2. The Conservatism Trap

Understand that the valuer is working for the lender, not the borrower. Their mandate is to provide a conservative, risk-mitigated estimate.

Challenge Assumptions: If you believe the estimated liquidation costs (e.g., brokerage fees or transport costs) are inflated, you need to be ready to present specific, documented, lower-cost alternatives (e.g., an existing relationship with a consignment broker).
Show Market Depth: For specialised equipment, if you can demonstrate that a vibrant secondary market (with recent comparable sales data) exists, you may argue for a higher NOLV.

3. Inventory Specifics

Inventory is often the most subjective asset class in an NOLV valuation.

Obsolescence: The valuer will look closely at inventory aging reports. Any stock flagged as slow-moving or obsolete will be heavily discounted or excluded entirely. Ensure your inventory write-downs and aging reports are clean before the valuation occurs.
Finished Goods vs. Raw Materials: Finished goods and raw materials typically command a higher NOLV percentage than work-in-progress because they are easier to sell as individual items in a liquidation scenario.

4. Post-Valuation Negotiation

The final NOLV report gives the lender their ceiling. Your negotiation begins from that point.

Negotiate the Advance Rate: Even if the NOLV figure is fixed, you may be able to negotiate a higher Advance Rate (the percentage applied to the NOLV) by demonstrating superior management, strong cash flow, or providing personal guarantees.
Continuous Reporting: Be aware that in ABL facilities, your borrowing base is often reconciled monthly or quarterly against the value of your assets. The NOLV is a living calculation, and depreciation or obsolescence can reduce your available funding limit over time.

By understanding the conservative nature of NOLV and preparing your assets and documentation meticulously, you can manage the lender’s expectations and maximise your available financing.