what does the loan to cost ltc ratio tell you 
the ltc ratio is used to calculate the percentage of a loan or the amount that a lender is willing to provide to finance a project based on the hard cost of the construction budget after the construction has been completed the entire project will have a new value for this reason the ltc ratio and the ltv ratio are used side by side in commercial real estate construction the ltc ratio helps to delineate the risk or risk level of providing financing for a construction project ultimately a higher ltc ratio means that it is a riskier venture for lenders most lenders provide loans that finance only a certain percentage of a project in general most lenders finance up to 80 of a project some lenders finance a greater percentage but this typically involves a significantly higher interest rate while the ltc ratio is a mitigating factor for lenders that are considering the provision of a loan they must also consider other factors lenders will also take into account not only the location and value of the property on which the project is being built but also the credibility and experience of the builders as well as the borrowers credit record and loan history example of how to use ltcas a hypothetical example let s assume that the hard construction costs of a commercial real estate project are 200 000 to ensure that the borrower has some equity at stake in the project the lender provides a 160 000 loan this keeps the project slightly more balanced and encourages the borrower to see the project through to its completion the ltc ratio on this project would be calculated as 160 000 200 000 80 the difference between the loan to cost ltc and loan to value ltv ratiosthe loan to value ltv ratio is closely related to the ltc ratio but is slightly different the ltv ratio compares the total loan given for a project against the value of the project after completion rather than to its cost of construction considering the above example let us assume that the future value of the project once completed is double the hard construction costs or 200 000 if the total loan given for the project after completion is 320 000 then the ltv ratio for this project would also be 80 or 320 000 400 000 