What Is Loan-to-Value Ratio (LTV)? | Business Lending Glossary

Loan-to-value ratio (LTV) explained — how it is calculated, why lenders care about it, and how LTV affects approval and pricing.

Definition

The ratio of a loan amount to the appraised or market value of the asset used as collateral, expressed as a percentage.

Explanation

LTV is a primary measure of collateral risk for secured lenders. A lower LTV means the lender has a larger equity cushion if the borrower defaults and the collateral must be liquidated. Most commercial real estate lenders cap LTV at 65-80%; equipment lenders typically lend at 80-100% of equipment value depending on asset type and liquidity.

Example

A business borrows $700,000 against a commercial building appraised at $1,000,000, producing an LTV of 70%, which is within most conventional commercial lender guidelines.

Why It Matters

LTV directly affects whether a loan is approved and at what rate — every percentage point above a lender's maximum LTV threshold can mean the difference between a funded deal and a decline.

Frequently asked questions

Can I borrow above 80% LTV on a commercial property?

Some SBA 504 loans allow combined LTV up to 90%, and certain bridge lenders go higher, but rates and fees increase significantly as LTV rises above conventional thresholds.