Tangible net worth

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-01

// THE SHORT ANSWER

Tangible net worth is the owners' equity less intangible assets — goodwill, capitalised software, brands and the like — and, in many facility agreements, less amounts owed by related parties as well. Lenders test it because intangibles rarely survive the failure of the business that created them: the equity that absorbs a loss on the day the bank needs it is the tangible part. A minimum tangible net worth covenant protects that cushion, and an acquisition paid for largely in goodwill can breach it on the day it completes.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.