Loan-to-value (LTV)

Definition

Loan-to-value (LTV) is the loan amount divided by the value of the asset securing it. A £150,000 loan against a £200,000 property is a 75% LTV. A lower LTV means more equity cushioning the lender, which usually earns better terms.

Where it applies

LTV matters on asset finance, commercial mortgages and other secured lending. It does not apply to unsecured, cash-flow-based borrowing. See secured vs unsecured.

In practice

For a UK limited company putting up property or equipment as security, LTV is usually the first number a lender calculates, often before turnover or trading history enters the conversation. A director approaching a lender with an asset already carrying other charges, or one nearing the end of its useful life, should expect the usable value to be discounted before any ratio is applied.

The practical effect shows up in what the loan can be used for and how it is structured. A company offering an asset with plenty of headroom below its market value tends to find the conversation moves quickly to terms; one offering an asset close to fully encumbered tends to face more questions about a second source of security or a smaller facility altogether.

How lenders read it

Lenders treat LTV as a cushion measure rather than a pass or fail line. A lower ratio signals more equity standing between the lender and a loss if the asset had to be sold, so it tends to correlate with faster underwriting and fewer conditions attached to an offer. A higher ratio does not automatically rule a company out, but it usually invites closer scrutiny of the wider picture, such as the strength of trading cash flow referenced under asset finance.

Valuation methodology matters as much as the ratio itself. Two companies quoting the same headline percentage can be assessed very differently depending on how recently the asset was valued, who valued it, and whether the figure reflects a forced-sale or open-market basis — lenders will often ask which basis was used before relying on a number a director supplies.