The quick answer: loan-to-value (LTV) is loan amount ÷ collateral value × 100. For a business loan secured on commercial property, many banks are comfortable somewhere around 60–80% LTV, and the lower your LTV, the stronger your application looks. For equipment, stock and receivables, banks usually lend a smaller share of value because those assets are harder to sell. Exact limits vary by bank, country and asset.
Want to see where your own request sits? Enter your loan amount and asset value in our free LTV Calculator. Below, our team explains how lenders actually use this ratio, and why the “value” in LTV is often lower than the number you have in mind.
LTV at a glance
The ranges below are illustrative of what borrowers commonly encounter, not any bank’s policy. Your lender’s credit manual decides the real numbers.
| LTV band | How a lender tends to read it |
|---|---|
| Below 50% | Very comfortable cushion; collateral is rarely the sticking point |
| 50–65% | Solid; leaves room for a fall in value or a forced sale discount |
| 65–80% | Often acceptable for good property, but expect closer scrutiny of cash flow |
| Above 80% | Thin cushion; may need extra security, a guarantee or a government-backed scheme |
Why banks care about LTV
From the lender’s side, collateral is the second way out. The first way out is your cash flow, which is why banks look at repayment capacity using tools like the DSCR Calculator before they look at security. LTV answers a different question: if the business cannot pay and we have to sell the asset, will we get our money back?
A sale under pressure rarely achieves full market value. There are legal costs, agent fees, time delays and sometimes a falling market. The gap between the loan and the asset value is the bank’s buffer against all of that.
How lenders calculate LTV, step by step
- Establish the value. Most banks use an independent valuation from an approved valuer, not the owner’s estimate. Many also apply the lower of purchase price and valuation for newly bought assets.
- Pick the value basis. Some lenders use market value; others use a forced sale value, which is lower. Always ask which one applies.
- Apply the formula. LTV = loan ÷ value × 100.
- Compare with the policy limit. Maximum loan = value × maximum LTV.
- For mixed collateral, apply asset-by-asset advance rates (the share of each asset’s value the bank will lend against), then add them up.
Worked examples
Example 1: a warehouse loan and a lower valuation
A distribution business asks for 560,000 against a warehouse the owner values at 800,000. On those figures LTV is 560,000 ÷ 800,000 = 70%, inside a 75% policy limit, which would allow up to 600,000.
The bank’s valuer, however, puts the property at 720,000. Now LTV is 560,000 ÷ 720,000 = 77.8%, above the limit. The maximum loan becomes 720,000 × 75% = 540,000, leaving a 20,000 gap. The owner can put in more equity, offer extra security, or reduce the request.
Example 2: mixed collateral for a working capital line
A manufacturer requests a 350,000 facility and offers three types of collateral. Using example advance rates:
| Asset | Value | Example advance rate | Lending value |
|---|---|---|---|
| Receivables | 200,000 | 80% | 160,000 |
| Inventory | 150,000 | 50% | 75,000 |
| Machinery | 250,000 | 60% | 150,000 |
| Total | 600,000 | — | 385,000 |
Overall LTV on market value is 350,000 ÷ 600,000 = 58.3%. More importantly for the credit officer, the lending value of 385,000 covers the 350,000 request about 1.10 times, so the security structure works. Notice how 600,000 of assets supports well under 600,000 of borrowing. Our guide to what collateral banks accept and how they value it explains why stock and receivables get bigger haircuts.
Practical tips to improve your LTV
- Bring a larger down payment. Every unit of equity lowers the loan side of the ratio.
- Offer an additional asset. A second property or unencumbered equipment can bring a blended LTV back within limits.
- Get a realistic valuation early. Budget on the bank’s likely value, not your hopeful one.
- Keep receivables clean. Overdue and related-party invoices are often excluded from the eligible pool.
- Check your overall borrowing room. The Business Borrowing Capacity Calculator shows whether cash flow supports the loan at all.
Common mistakes
- Treating low LTV as a guarantee of approval. Strong collateral cannot rescue weak repayment capacity. Banks lend against cash flow first.
- Ignoring existing charges. If the asset already secures another loan, the bank counts that debt too, which raises the effective LTV.
- Using replacement cost for used equipment. Lenders look at what it would sell for second-hand, which can be far lower.
- Forgetting LTV is monitored. Some facilities include a covenant to keep LTV below a level, with revaluations during the loan’s life. Read the term sheet carefully.
FAQ
What is a good LTV for a business loan?
Lower is better from the lender’s view. For property-backed loans, many banks are comfortable at roughly 60–80%, while below about 65% usually gives a healthy cushion. Limits vary by bank, country and asset type.
How do I calculate loan-to-value?
Divide the loan amount by the collateral value and multiply by 100. A 300,000 loan on a 500,000 asset is a 60% LTV.
Is LTV the same as a haircut?
They are two sides of the same idea. A 30% haircut means the bank lends up to 70% of the asset’s value, which is a 70% maximum LTV for that asset.
Can I get a business loan without collateral?
Sometimes. Some lenders offer unsecured facilities to businesses with strong cash flow, often with a personal guarantee instead, usually at a higher price and lower amount.
This article is general information only, not financial advice. Lending criteria vary by bank and country.
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