Loan-to-Value (LTV) Calculator

What Is Loan-to-Value in Commercial Real Estate

Loan-to-value, or LTV, is the single most widely used leverage metric in commercial real estate lending. It expresses the loan principal as a percentage of the property's value and is the primary signal a credit officer uses to size a loan, establish pricing, and set covenant levels. An LTV of 75% on a $2,000,000 property means the lender has extended $1,500,000 and the borrower is contributing $500,000 of equity.

The formula is straightforward: LTV equals loan amount divided by value, multiplied by 100. The nuance lies in which value is used and which loan amount is measured. Lenders apply different conventions for acquisitions, refinances, and construction loans, and they distinguish between senior loan LTV, combined LTV, and stabilized LTV.

How LTV Is Measured Across Transaction Types

For a purchase, LTV is measured against the lesser of the appraised value and the contract purchase price. A borrower buying a $2,000,000 property at a $2,200,000 contract price does not receive a higher loan simply because they paid over appraisal, the lender caps the sizing on the lower number. For a refinance, the purchase price is no longer relevant and LTV is measured against current appraised value only. For a construction loan, lenders size against as-complete or as-stabilized value from the appraisal, typically with an interim as-is LTV test at closing.

Typical LTV Ceilings by Loan Type

Related Leverage Metrics

LTV is one of several leverage tests run in parallel during commercial underwriting. A feasibility study or loan package typically reports all of the following.

• Loan-to-Cost (LTC): loan amount divided by total project cost, inclusive of acquisition or hard construction costs, soft costs, closing costs, and working capital. LTC is the relevant leverage measure during construction and lease-up, before stabilized value exists.
• Combined Loan-to-Value (CLTV): the sum of senior and subordinate debt divided by value. Credit committees watch CLTV when seller carrybacks, mezzanine financing, or 504 stacks sit behind a first mortgage.
• Stabilized LTV: the projected LTV once lease-up or construction is complete and the property achieves underwritten income. A loan sized at 75% on as-complete value may be at 95% of as-is value at closing.
• Debt Yield: net operating income divided by loan amount, expressed as a percentage. Debt yield is a leverage substitute that neutralizes cap-rate compression and is the preferred metric for CMBS and many balance-sheet lenders.
• Debt Service Coverage Ratio: net operating income divided by annual debt service. DSCR constrains leverage independently of LTV and is the operative test when cash flow, not value, is the binding constraint. Model DSCR separately in the DSCR Calculator.

LTV in the SBA 504 Capital Stack

The SBA 504 program is unusual in that its LTV is expressed as a fixed capital stack rather than a sizing cap. A standard 504 transaction is structured 50% first-mortgage bank loan, 40% CDC debenture in second lien position, and 10% borrower equity. The program's combined 90% LTV is therefore a function of the stack, not a negotiable maximum.

SOP 50 10 Version 8, effective June 1, 2025, restored a fixed equity injection matrix that steps up the borrower contribution for startups and special-purpose properties. A business under two years of operation pays an additional 5% of equity (85% combined LTV); a special-purpose property classification adds another 5% (80% combined LTV if both conditions apply). The full regulatory framework is documented in the SOP 50 10 8 Regulatory Reference.

LTV and SBA 504 Refinance

The 504 refinance program was restructured by Direct Final Rule 89 FR 79734, effective October 1, 2024, and rolled into SOP 50 10 8. Two material changes affect LTV sizing. First, the prior 50%-of-debt cap on refinanced balances was removed. Second, the prior 20%-of-appraisal cap on cash-out for Eligible Business Expenses was eliminated. Both refinance scenarios, with and without cash-out, now size to 90% of appraised value, subject to the overall 90% ceiling.

The original debt being refinanced must have been current for the prior six months (or for the full term if younger than 12 months), the business must have been in operation for at least two years, and at least 75% of the original debt proceeds must have been used for 504-eligible fixed assets. The threshold was lowered from the prior 85% standard.

Common LTV Pitfalls

• Using the wrong value denominator. On a purchase, the lesser of appraised value and purchase price governs. Sizing to purchase price alone overstates LTV headroom when the appraisal lands low.
• Ignoring soft costs. A 75% LTV can correspond to an LTC well above 85% once tenant improvements, fees, and working capital are added. Credit officers look at both.
• Conflating senior LTV with combined LTV. A first mortgage at 65% LTV behind a 10% seller carry produces a 75% CLTV, and the carry is usually subordinated on standby terms that limit enforcement. The covenant set reflects total leverage, not just the senior tranche.
• Assuming the 90% 504 ceiling always applies. Startup and special-purpose classifications reduce the ceiling by 5% or 10%. A hotel acquired by a first-time operator falls into the 80% stack by default.
• Overlooking the as-is test on construction deals. An 80% as-complete LTV can correspond to a 110% as-is LTV at closing, which triggers additional reserves, cross-collateral, or guarantor support.

Frequently Asked Questions