Loan-to-Value (LTV) — definition
Ratio expressing the amount of a loan as a percentage of the appraised value of the asset securing it, used by lenders to assess collateral risk.
A lower LTV indicates a larger equity or down payment cushion relative to the loan, reducing lender exposure if the asset must be repossessed and sold. LTV requirements for industrial equipment and property financing commonly vary based on asset type, liquidity and expected resale value.
Why it matters to industrial buyers
LTV directly affects how much equity or down payment a buyer must contribute and influences the interest rate and terms a lender is willing to offer.
Key reference points
Typical range
Industrial equipment financing commonly involves LTV ratios in the range of 70-90 percent, depending on the equipment's specificity and resale market.
Commonly confused with
Debt service coverage ratio
LTV assesses collateral coverage relative to loan size; DSCR assesses whether ongoing cash flow can service loan repayments.
How it is used in practice
A lender offers an 80 percent loan-to-value ratio on a new production line, requiring the buyer to fund the remaining 20 percent.
Frequently asked questions
Does highly specialised equipment affect LTV?
Yes; equipment with limited resale markets, such as custom special-purpose machines, commonly attracts lower LTV ratios due to reduced collateral liquidity.
Is LTV the only factor lenders consider?
No; lenders typically also assess cash flow, creditworthiness and, for project finance, debt service coverage ratio.
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Related terms
Debt Service Coverage Ratio (DSCR)
Financial ratio comparing a project's or company's available cash flow to its scheduled debt service obligations, used by lenders to assess repayment capacity.
Equipment Financing
Financing arrangement in which a lender provides funds specifically to purchase machinery or equipment, typically secured by the equipment itself as collateral.
Special Purpose Machine (SPM)
Special Purpose Machine (SPM) denotes equipment engineered for one defined process or product family rather than adapted from a standard catalogue design.
Bankability
Degree to which a project's contracts, cash flows, risk allocation and documentation are sufficiently robust to attract debt financing from commercial lenders.
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Reference content only. Global B2B Group is independent of equipment manufacturers and financing institutions; definitions are provided for education and do not constitute engineering, financial or legal advice.