What is Loan-to-Cost (LTC) Ratio?

The loan-to-cost (LTC) ratio is a financial metric used to assess the alignment between the project’s financing, typically in the form of a loan, and the actual construction costs. This ratio plays a pivotal role for both commercial real estate lenders and developers: lenders utilize it to gauge the risk associated with granting construction loans, while developers rely on it to determine the amount of equity they retain throughout the construction process. Notably, the LTC ratio is akin to the loan-to-value (LTV) ratio, as both metrics compare the construction loan amount to the project’s estimated fair-market value upon completion.