Business tangible net worth
What it means
This is what the business owns minus what it owes. "Tangible" means we leave out things you can't touch or easily sell, like goodwill and patents.
Why lenders ask
It shows how much real value is behind the business. Lenders favour tangible assets because they can be sold if something goes wrong.
Why intangibles are left out
A balance sheet can include intangible assets such as goodwill (often created when you buy another business for more than its assets are worth), trademarks, patents or customer lists. They can be genuinely valuable to you, but they are hard for a lender to sell if the loan goes bad, so lenders usually strip them out and look at what's left.
That's why tangible net worth can be lower than the equity figure on your balance sheet, sometimes by a lot for a business that was bought rather than started.
How lenders use it
Tangible net worth speaks to two of the "5 Cs of credit": capital (how much the owners have built up in the business) and collateral (what could be sold to repay the loan). Lenders also compare it with the business's total debt to see how heavily it is already borrowed.
A business that keeps some of its profit in the company each year, rather than paying it all out, builds tangible net worth over time and usually finds borrowing easier.
Good to know
Your accountant or bookkeeper can read these numbers straight off your latest balance sheet.