Loan-to-Value (LTV)
The loan amount divided by the appraised value (or purchase price) of the collateral, expressed as a percentage, measuring the equity cushion protecting the lender.
LTV = Loan Amount / Appraised Value of Collateral
LTV answers the collateral question: if the loan defaults and the bank has to sell, how much room is there before a loss? An 80% LTV means the borrower has 20% equity standing in front of the bank. The lower the LTV, the deeper the cushion.
Bank regulators publish supervisory LTV limits by collateral type, for example 85% for improved commercial property, 75% for raw land, and 65% for undeveloped land under the interagency real estate lending guidelines. Exceeding them is allowed but the loan lands on a monitored exceptions report, so LTV is both a risk measure and a compliance one.
LTV alone can mislead: a low LTV on a property that produces no cash flow is still a bad loan. Underwriters read it alongside DSCR (can they pay?) and debt yield (how leveraged is the income?).
Turn Definitions Into Decisions
Shockproof teaches these measures the way credit teams actually use them, on real files with a defensible decision at the end.