Net Orderly Liquidation Value (NOLV)
Definition
Net orderly liquidation value is the orderly liquidation value of an asset less the direct costs of realising it, giving the amount a lender would expect to net after a controlled disposal. It strips out disposal expenses such as agent and legal fees, marketing costs, storage, and any taxes or commissions, leaving the figure that would actually reach the secured creditor. NOLV is a working benchmark in asset-based lending because it anchors advance rates to realistic recovery rather than book or going-concern value. In mainstream ABL, inventory is often advanced at up to roughly 80 to 90 per cent of NOLV, and a field examination or collateral audit tests the reported figures and estimates that liquidation value independently. For IP-backed lending the same logic applies but with more caution: intangibles are illiquid, so the net proceeds after a realistic marketing period and disposal costs can sit well below a headline valuation. The three lender tests shape the outcome, because separability, saleability and legal strength each affect both the gross realisation and the cost and time of getting there. A UK example: a software company pledging registered trade marks and a patent alongside receivables and equipment would see each collateral class assessed on its own net basis, with the receivables advanced at a high rate, the plant on an orderly-liquidation basis, and the IP treated as a marginal top-up valued case by case. Getting the net orderly liquidation value right matters to both sides. For the lender it drives loss given default and the loan-loss provision; for the borrower it explains why the advance is lower than the gross appraisal, and why clean, unencumbered, in-force IP with documented chain of title realises more, and costs less to realise, than rights with an uncertain or contested history.
Complementary Terms
Concepts that frequently appear alongside Net Orderly Liquidation Value (NOLV) in practice.
Orderly liquidation value is the estimated proceeds an asset would realise if sold within a reasonable marketing period by a willing but compelled seller, rather than in a rushed distress sale. It sits between market value and forced sale value, and it is the premise a prudent lender leans on when sizing security against intangibles.
Forced sale value is the estimated proceeds from selling an asset under compulsion and time pressure, where the seller cannot wait for a proper marketing period. It is the most conservative of the common realisation bases, sitting below both market value and orderly liquidation value, and it reflects the discount a buyer extracts when they know the sale must happen quickly.
An advance rate is the percentage of an asset's assessed value that a lender will actually lend against, converting collateral quality into a realistic borrowing limit. It is the discipline at the heart of advance rate lending: the gap between the asset's value and the amount advanced is the lender's cushion against realisation shortfalls, disposal costs and the time it takes to sell on default.
A field examination is a lender's on-site verification of a borrower's collateral and reported financial figures, carried out before funding and periodically through the life of an asset-based facility. Field examination lending practice exists because availability in an asset-based facility depends on the accuracy of the numbers a borrower reports, and a lender will not simply take those figures on trust.
A collateral audit is an independent examination that tests whether the assets a borrower pledges as security genuinely exist, are properly owned, and can be realised for the value claimed. It underpins asset-based lending, where the amount a borrower can draw depends on the reliability of reported collateral.
Loss given default is the proportion of a loan a lender expects to lose after a borrower defaults, once any recoveries from realising collateral and enforcing security have been taken into account. Loss given default sits at the heart of how IP-backed credit is priced and provisioned, because it captures what actually happens when the primary repayment source, operating cash flow, fails and the lender must fall back on the intangible collateral.
The process of determining the fair value of assets pledged as security for a loan, specifically adapted for the requirements of lending rather than accounting or tax purposes. Collateral valuation for intangible assets differs from standard intangible asset valuation in several important ways: it emphasises liquidation value rather than value-in-use, it considers the transferability of the asset to a hypothetical buyer in a forced-sale scenario, and it applies conservative assumptions reflecting the lender's need for downside protection.
Related FAQ
What is a field examination in asset-based lending?
A field examination is an on-site collateral audit where the lender tests the assets in your borrowing base — verifying reported figures and estimating liquidation value before and during the facility.
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