What is a loan-to-cost ratio?

Definition: The loan-to-cost ratio is the ratio of a loan used to help finance a project compared to the total cost.

For example, if a project is expected to cost $1,000,000 and the borrower asks for $700,000, the Loan-to-Cost Ratio would be 70%.

Generally, the higher the LTC, the riskier a project is depending on an investment’s position in the capital stack.

A similar metric, the loan-to-value ratio (LTV), compares the amount of the loan to the fair-market value of the project.

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