If you’re applying for equipment finance, a business vehicle loan, or any other type of secured finance, there’s a good chance you’ll hear about LVR—or Loan-to-Value Ratio. It’s a simple concept that plays a big role in whether your loan gets approved, what interest rate you pay, and how much security the lender needs.

In this beginner-friendly guide, we’ll break down what LVR actually means, how it works in real-world business lending, and whether you need to worry about it.

Table of Contents

• What Is a Loan-to-Value Ratio (LVR)?
  
• Why LVR Matters in Business Finance
  
• Common LVR Limits in Australian Lending
  
• How to Lower Your LVR Before Applying
  
• Is a High LVR Always a Problem?
  
• Final Thoughts
  

What Is a Loan-to-Value Ratio (LVR)?

LVR stands for Loan-to-Value Ratio, and it refers to the percentage of the asset’s value that you’re borrowing.

Here’s the basic formula:
LVR = (Loan amount ÷ Asset value) × 100

Example:

If you borrow $40,000 to finance equipment valued at $50,000:
LVR = (40,000 ÷ 50,000) × 100 = 80%

In short, the higher your LVR, the more you’re borrowing relative to the value of the asset. And the higher the LVR, the more risk the lender takes on.

Why LVR Matters in Business Finance

Lenders use LVR to assess how secure a loan is. When you apply for equipment finance, vehicle finance, or small business loans in Australia, the lender wants to know they can recover their money if something goes wrong.

Here’s what your LVR tells the lender:

• A low LVR means you’re contributing more upfront—this lowers the lender’s risk.
  
• A high LVR means you’re borrowing most (or all) of the asset’s value—this raises risk for the lender.
  

This risk directly affects:

• Your loan approval chances
  
• Your interest rate
  
• Whether extra security or a personal guarantee is needed
  

Common LVR Limits in Australian Lending

LVR limits vary depending on the lender and asset, but here’s a general guide:

Some lenders may offer higher LVRs in specific cases—especially if you have strong financials or provide additional security.

How to Lower Your LVR Before Applying

If your LVR is too high, you may struggle to get approved or pay more in interest. The good news is you can reduce your LVR with a few smart steps:

Ways to lower your LVR:

• Make a larger deposit – Even 10–20% upfront can improve your terms
  
• Choose a newer or higher-value asset – This reduces the loan-to-value ratio
  
• Get a professional valuation – Especially helpful for used equipment or vehicles
  
• Bundle multiple assets into one loan – Can improve overall LVR depending on the mix
  

Working with a finance broker can also help structure your loan in a way that brings the LVR down without overstretching your cash flow.

Is a High LVR Always a Problem?

Not necessarily. Some lenders specialise in higher-LVR loans, especially for business-critical equipment or fast-growing businesses that need to preserve cash.

That said, higher LVRs often come with:

• Higher interest rates
  
• More restrictive loan terms
  
• Requirements for additional security or personal guarantees
  

It’s all about weighing risk and return. If the equipment or vehicle will generate revenue right away, a higher LVR might still make sense.

Final Thoughts

Loan-to-Value Ratio is one of those key numbers that lenders pay close attention to—but that doesn’t mean it has to work against you. Knowing how LVR works, and how to manage it, can help you get better outcomes from your next business finance application.

Not sure what your LVR looks like or how to improve it? Talk to Capital Plus Finance—we’ll help you compare options from over 40 lenders and find a finance solution that works for your business.