Why loan-to-value ratio (LTV) matters to a first-time founder
Lenders use LTV to judge how much value cushions a secured loan. A higher ratio usually means less protection if the asset must be sold, which may affect approval, pricing or covenants. Founders should also watch changes caused by repayments or falling valuations.
Examples of loan-to-value ratio (LTV)
A company borrows ₹60 million secured on a property valued at ₹80 million. Dividing the loan by the value gives a 75% LTV. If the property is later valued at ₹70 million while the balance remains unchanged, the ratio rises to about 86%.
Common misunderstanding
LTV is not the same as the deposit percentage, total project cost or affordability. Its numerator and valuation basis must be defined. Lenders may use purchase price, market value or a discounted value, and may include different debt amounts under their own methodology.
When to use it
Use LTV when comparing secured financing or monitoring a valuation covenant. State the loan balance, asset value, valuation date and calculation method. Stress-test lower values and check the agreement’s definition, because crossing a threshold may trigger additional security, repayment or default rights.