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Loan-to-value LTV
Also called LTV, combined loan-to-value, CLTV.
The loan amount as a percentage of the collateral's appraised value — the lender's measure of how much cushion sits between the debt and a bad outcome.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
Loan divided by value. The lower the ratio, the more the collateral can fall in price before the lender is exposed, which is why LTV limits are the primary sizing control in any real-property or equipment-secured facility.
Which value
The lender's, established by an appraisal it ordered from an appraiser it selected. Not the purchase price, not a broker's opinion, not what the owner believes. In a purchase transaction lenders typically use the lower of purchase price and appraised value, which means an appraisal below the contract price reduces the loan and increases the cash the buyer must find.
For equipment and inventory, the relevant value is usually a liquidation measure rather than fair market value, which produces a much lower advance for the same asset.
Combined LTV
Where more than one lien sits on the same collateral, CLTV counts them all. A first mortgage at 60% LTV plus a second at 15% is 75% CLTV, and the senior lender's covenants may cap CLTV regardless of who holds the junior debt.
Where it appears in small business
Owner-occupied commercial real estate, SBA 504 and 7(a) deals secured by property, equipment finance, hard money, and any ABL facility with a fixed-asset component. It is not used in cash-flow lending or in merchant cash advance, which have no collateral value to divide by.
Where this one catches people
Borrowers plan on an LTV against a value they have assumed. The appraisal is the whole variable, it arrives late in the process, and it is frequently lower than expected — particularly for special-purpose properties, owner-occupied buildings in thin markets, and anything valued by the owner from a comparable sale they remember. Budget for a shortfall and understand where the additional equity would come from before you are three weeks from closing.
Worked through
Illustrative. A building under contract at $900,000 appraises at $840,000. The lender caps at 75% LTV and uses the lower of price and value.
Maximum loan = $840,000 × 0.75 = $630,000. The buyer needs $270,000 against the $900,000 price rather than the $225,000 they budgeted at 75% of the contract price — a $45,000 gap created entirely by the appraisal.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Loan-to-value — common questions
What does loan-to-value mean?
The loan amount as a percentage of the collateral's appraised value — the lender's measure of how much cushion sits between the debt and a bad outcome.
Where does loan-to-value catch people out?
Borrowers plan on an LTV against a value they have assumed. The appraisal is the whole variable, it arrives late in the process, and it is frequently lower than expected — particularly for special-purpose properties, owner-occupied buildings in thin markets, and anything valued by the owner from a comparable sale they remember. Budget for a shortfall and understand where the additional equity would come from before you are three weeks from closing.
Is loan-to-value the same as an interest rate?
Loan-to-value is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does loan-to-value apply to?
Term Loan, SBA Loan, Equipment Financing, Asset-Based Lending.
Is there a worked example of loan-to-value?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside loan-to-value?
Advance rate, Appraisal, Collateral, Equity injection, Haircut.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.