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Tangible Net Worth Definition

If you want to know the tangible net worth definition, it is simply the sum of all tangible properties minus the liabilities and other intangible properties. The calculation is usually the same for businesses and individuals.

The figures are important for lenders when approving loans and other forms of financing.

Tangible Net Worth Definition

There are many formulas being used for various calculations. With the tangible net worth, you can use it for businesses and individuals. This is a very important consideration for lenders and financial institutions. You should be aware of the fact that many of today’s borrowers, whether for personal or business loans, are unable to pay what they owe. In this case, the lender simply wants to find out if their clients have adequate cash holdings that can be recovered to pay for their dues. The calculations can fluctuate since this is also affected by certain factors.

Physical properties and inventory amounts can change over time. For instance, the net worth of the certain physical property can fluctuate because of aging and other relevant market factors. If you’re unable to repay what you owe, the lenders may tap into your private holdings. Business owners that opt to collateral their personal property or funds are at risk of losing a lot of money when something goes wrong in the future. If a person or company does not have a tangible net worth, the lender can turn them down. It is SOP for most lenders to submit a document of the tangible net worth of personal properties.

Individual and Business Calculations

In the case of individuals, calculating the tangible net worth is quite easy. This simply refers to the sum of all tangible properties like cars, land, home, cash balance, and other physical properties. If you owe liabilities, it will be deducted to the amount. For business owners, things will be considered like inventory, cash, and other properties. The liabilities and other intangible properties (e.g. intellectual properties, patents, and goodwill) are then deducted from the sum. The procedure for the calculation may vary from one lender to another but in most cases, they follow the same rules.

It is always a great idea to calculate the tangible net worth before you apply for loans and other types of borrowings. This is usually a requisite for large amounts of loans since lenders prefer applicants that are ‘low risk’. Build your worth by investing more on tangible properties. If you know how to manage your liabilities well, you can have a high net worth. You have to keep your expenses low as much as possible. This is only possible if you know how to manage your finances. What are you waiting for? Determine your tangible net worth today and secure the needed financing. Regardless of the purpose of the borrowing, you can get what you need.

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