Loan to Cost Ratio(LTC)
The loan-to-cost (LTC) ratio is a metric used in commercial real estate construction to compare the amount of the loan used to finance a project with the cost to build the project.
Therefore, the LTC ratio calculates the amount of percentage of the loan that a lender is willing to lend for financing a commercial real estate project based on the hard cost of its construction.
The LTC ratio enables commercial real estate lenders to determine the risk of lending a construction loan. The amount of equity retained during construction is also derived by the developers through this ratio.
If the rate of LTC is higher, it means that the project is riskier for the lenders. Generally, commercial real estate lenders finance a project that has an LTC ratio of up to 80%.
LTC is calculated by using the given formula: –
Loan Amount ($) / Total Projected Cost ($) = LTC (%)
Assuming the construction cost of a commercial real estate project is $200,000 and a lender provides $160,000, the LTC ratio in this project would be:
This help page and the information contained herein is provided for informational and discussion purposes only and is not intended to be a recommendation for any investment or other advice of any kind, and shall not constitute or imply any offer to purchase, sell or hold any security or to enter into or engage in any type of transaction.
Investing in venture capital funds is inherently risky and illiquid. It involves a high degree of risk and is suitable only for sophisticated and qualified investors.