Loan-to-Value Ratio: Understanding LTV in Business Lending
Learn what loan-to-value ratio means, how lenders use it, and why LTV affects your borrowing capacity and loan terms.
What Is Loan-to-Value Ratio?
Loan-to-value (LTV) ratio expresses the loan amount as a percentage of the collateral value. A $400,000 loan on a $500,000 property represents an 80% LTV. Lenders use LTV to assess risk—higher LTVs mean less equity cushion and higher risk.
LTV requirements vary by loan type, property type, and lender risk tolerance.
Calculating LTV
LTV = (Loan Amount / Collateral Value) x 100
| Example | Loan Amount | Value | LTV |
|---|---|---|---|
| Commercial Property | $800,000 | $1,000,000 | 80% |
| Equipment | $45,000 | $50,000 | 90% |
| Inventory | $100,000 | $200,000 | 50% |
Typical LTV Limits by Loan Type
Maximum LTV varies by collateral and loan program.
| Loan Type | Typical Max LTV | Notes |
|---|---|---|
| Commercial Real Estate | 75-80% | Owner-occupied may go higher |
| SBA Real Estate | 85-90% | SBA guarantee allows higher LTV |
| Equipment | 80-100% | Depends on equipment type |
| Inventory | 50-70% | Due to liquidation risk |
| Accounts Receivable | 70-90% | Based on aging and quality |
Impact of LTV on Your Loan
Higher LTV ratios affect your loan in several ways.
- Higher interest rates to compensate for risk
- May require mortgage insurance or SBA guarantee
- More scrutiny in underwriting process
- Additional collateral may be required
- Stricter covenants and monitoring
Lowering your LTV by making a larger down payment often results in better rates and terms. Even a 5-10% difference in down payment can meaningfully impact your loan costs.
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Read more →Important Disclosure
Not Financial Advice: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. You should consult with qualified professionals before making any financial decisions.
No Guarantee of Financing: Liminal Lending Co. is a business loan marketplace that connects borrowers with third-party lenders. We are not a lender and do not make credit decisions. Submitting an application does not guarantee approval or funding. Loan terms, rates, and availability vary by lender and are subject to borrower qualifications and lender criteria.
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Rate Information: Rates, terms, and fees mentioned in this article are estimates based on publicly available information and may not reflect current market conditions or specific lender offers. Actual rates depend on creditworthiness, business financials, and lender policies.
Information May Change: Financial markets, lending regulations, and economic conditions are subject to rapid change. While we strive to keep our content accurate and up-to-date, information in this article may become outdated. Always verify current rates, terms, program availability, and regulatory requirements with lenders and official sources before making financial decisions.