Loan-to-value is the ratio of a loan amount to the appraised value of the asset securing it, a primary measure lenders use to determine how much they will advance against a specific piece of collateral.
Loan-to-value measures how much of an asset’s value a lender is willing to finance and how much equity cushion remains beneath the loan. The lower the LTV, the more security the lender has and typically the more favorable the terms.
LTV applies across multiple asset categories. Real estate, equipment, and receivables each have their own typical advance rates reflecting the lender’s view of the asset’s liquidity and value stability in a distressed scenario. Understanding the LTV the lender is applying, and what it implies about the maximum financing available, is essential when structuring an acquisition or a refinancing.
See also: Security and Collateral · Commercial Mortgage · Asset-Based LendingLTV determines the borrowing ceiling on secured financing. Knowing it in advance shapes what structures are actually available. See how Wefinx approaches Virtual CFO services.