Loan-to-value (LTV) is the loan amount divided by the value of the asset securing it, expressed as a percentage. Lenders cap LTV to keep a cushion if they ever have to liquidate the collateral — so a lower LTV (more equity or down payment) generally means easier approval and better terms. It's central to commercial real estate, equipment, and mortgage lending.
LTV = loan amount ÷ the asset's appraised or purchase value. A $400,000 loan on a $500,000 property is an 80% LTV. The ratio measures the lender's exposure: the lower the LTV, the more equity stands ahead of the loan, so the lender is better protected if the asset must be sold to recover the balance — which is why low-LTV requests typically get better rates. Caps vary by asset and program. Commercial real estate is often financed around 65–80% LTV; SBA 504 loans pair a bank first-lien with a CDC second to reach a higher combined LTV on owner-occupied property; equipment financing can sometimes reach up to ~100% of cost (the equipment is the collateral). Residential mortgages commonly cap at 80% to avoid PMI, with FHA going higher. Lenders also look at combined LTV when there's more than one lien on the asset. LTV usually works alongside the debt-service-coverage ratio (DSCR): LTV tests collateral cushion, DSCR tests whether cash flow covers the payment. The SBA's 504 program details (https://www.sba.gov/funding-programs/loans/504-loans) and CFPB mortgage resources (https://www.consumerfinance.gov/) cover how LTV affects terms. ClearValue Lending factors LTV into routing for asset-secured financing.
Lower is generally better for the borrower's terms. Commercial real estate is often financed around 65–80% LTV; residential mortgages commonly cap at 80% to avoid PMI. A lower LTV means more equity ahead of the loan, which reduces lender risk and usually improves the rate.
LTV measures collateral cushion (loan ÷ asset value); DSCR measures whether cash flow covers the payment (net operating income ÷ debt service). Lenders use both — LTV for the asset, DSCR for the income — on most secured business and real-estate loans.