Loan-to-Cost Ratio: Definition, Why It's Important To Developers & Calculation

The Loan-to-Cost (LTC) ratio is a critical property development finance metric. It measures the loan amount relative to the total project cost, encompassing land acquisition, construction expenses, and associated fees. Calculated by dividing the loan amount by the total project cost, the LTC ratio helps lenders evaluate a project's financial risk and feasibility.

A lower LTC ratio signifies greater borrower equity and reduced risk for lenders, while a higher ratio indicates a heavier reliance on borrowed funds and increased lender risk. This ratio is distinct from the Loan-to-Value (LTV) and Loan-to-Gross Development Value (LTGDV) ratios, which assess different aspects of a project's financial structure and potential profitability.

Understanding the LTC ratio is essential for developers and lenders to make informed decisions, assess project viability, and optimise financing strategies. A "good" LTC ratio varies by project type and market conditions, with typical ratios ranging from 55% to 80% depending on the specific development. Lower LTC ratios generally lead to better loan terms and reduced financial risk, making them a crucial consideration in property development financing.

What is LTC (Loan-to-Cost)?

What is the Loan-to-Cost (LTC) ratio?

The "Loan-to-Cost" (LTC) ratio is used primarily in property development and financing. It measures the loan amount relative to the total project cost. It's calculated by dividing the loan amount by the project's total cost, including land acquisition, construction costs, development fees, and other associated expenses.

How is LTC calculated?

The formula to calculate the LTC ratio is: 
LTC = Total Project Cost divided by Loan Amount multiplied by 100%

How do you calculate the LTC (Loan-to-Cost)?

LTC Example

If a developer secures a loan of £4,000,000 for a project with a total cost of £5,000,000, the LTC ratio would be:
LTC= 5,000,000 / 4,000,000  × 100% = 80%

The loan covers 80% of the total project cost, and the developer is responsible for financing the remaining 20% through equity or other means.

The LTC ratio is an essential factor lenders consider when evaluating the risk of financing a property development project. A lower LTC ratio indicates a lower level of risk for the lender, as the developer has more equity invested in the project. Conversely, a higher LTC ratio suggests a higher level of risk, as the developer relies more heavily on borrowed funds to finance the project.

How does the LTC ratio differ from the Loan-to-Value (LTV) ratio and the LTGDV ratio, and why is it important?

The Loan-to-Cost (LTC) ratio, Loan-to-Value (LTV) ratio, and Loan-to-Gross Development Value (LTGDV) ratio are all important metrics in property development financing. Still, they serve different purposes and measure distinct aspects of a project's financial structure.

Loan-to-Cost (LTC) Ratio:

Definition: The LTC ratio compares the financing a lender provides to the total cost of a property development project, including land acquisition, construction costs, and other associated expenses.

Calculation: LTC Ratio = Loan Amount / Total Project Cost

Importance: The LTC ratio helps assess the level of risk for lenders and determines the developer's equity contribution to the project. It ensures that the loan aligns with the actual costs of development, providing clarity on the project's financial structure and risk exposure.

Loan-to-Value (LTV) Ratio

Definition: The LTV ratio compares the loan amount to the appraised value or purchase price of the property securing the loan.

Calculation: LTV Ratio = Loan Amount / Property Value
It can be expressed as a decimal or percentage. For example, 0.8 or 80%.

Importance: The LTV ratio measures lenders' risk by indicating the proportion of the property's value financed by the loan. It helps lenders assess the collateral's adequacy and the borrower's equity stake, influencing loan approval, interest rates, and loan terms.

Loan-to-Gross Development Value (LTGDV) Ratio

Definition: The LTGDV ratio compares the loan amount to the anticipated gross development value of the completed project.

Calculation: LTGDV Ratio = Loan Amount / Gross Development Value

Importance: The LTGDV ratio evaluates the loan's relationship to the project's potential profitability, reflecting lenders' risk-return profiles. It provides insight into the project's feasibility, viability, and potential for generating returns, guiding financing decisions and risk management strategies.

What are the key differences between LTC, LTV and the LTGDV?

LTC focuses on the project's total cost, including development expenses, while LTV considers the property's appraised value or purchase price. LTGDV assesses the loan relative to the project's anticipated value upon completion, incorporating future revenue potential.

Each ratio serves a distinct purpose in evaluating different aspects of property development financing, from project costs and collateral value to profitability and risk exposure.

Overall, understanding the differences between LTC, LTV, and LTGDV ratios is essential for developers, lenders, and investors to make informed decisions, assess risk effectively, and optimise financing strategies for property development projects.

What is considered a good LTC ratio for different property development projects?

A "good" Loan-to-Cost (LTC) ratio varies from project to project, market conditions, and the lender's risk tolerance. However, there are some general guidelines for different types of property development projects:

Development Type

Typical LTC Ratio


Residential Property Development:

70% - 80%

Residential projects are generally considered less risky than commercial or industrial projects, so lenders are often willing to finance a higher percentage of the total project cost.

Commercial Development (Office, Retail, etc.)

65% - 75%

Due to market fluctuations and longer lease-up periods, commercial projects carry more risk. Therefore, lenders prefer a lower LTC ratio to mitigate this risk.

Industrial Development

60% - 70%

Industrial projects like warehouses and manufacturing facilities can have specialized requirements and higher vacancy risks, prompting lenders to prefer a lower LTC ratio.

Multifamily Development

70% - 80%

Multifamily housing projects often have stable cash flows and lower vacancy risks than other commercial properties, allowing for a higher LTC ratio.

Hospitality (Hotels, Resorts, etc.)

55% - 65%

Hospitality projects are considered high-risk due to their sensitivity to economic cycles and seasonal variations in occupancy rates, leading lenders to adopt a more conservative LTC ratio.

Mixed-Use Development

65% - 75%

Mixed-use developments combine residential, commercial, and sometimes industrial components, which can diversify risk yet introduce complexity, resulting in a moderate LTC ratio.

What's the importance of the LTC Ratio?

The Loan-to-Cost (LTC) ratio is a key metric for managing financial risk, assessing project feasibility, and guiding lending decisions. It helps lenders evaluate the financial risk of a project, with lower LTC ratios indicating higher borrower equity and reduced risk for the lender. This alignment ensures both parties are vested in the project's success. Additionally, the LTC ratio ensures project viability by preventing over-reliance on borrowed funds and promoting budget control. For lenders, it is crucial in loan approval processes, influencing interest rates and loan terms. Lower LTC ratios typically result in more favourable terms for borrowers, highlighting its significance in financial management.

Using LTC helps manage risk

LTC helps lenders assess risk and highlights the borrower's skin in the game.

  • Assessment of Financial Risk. The LTC ratio helps lenders assess a project's financial risk. A lower LTC ratio indicates that the borrower is investing more equity in the project, which reduces the lender's risk.
  • Borrower's Skin in the Game. A lower LTC ratio means the borrower has a significant financial stake in the project's success, aligning their interests with those of the lender.

Using LTC helps understand a project's feasibility

LTC helps determine viability and control budgets.

  • Viability Check. The LTC ratio is a good barometer of a project's likely success - its viability. It ensures that the project is adequately funded without relying too heavily on borrowed funds, which can signify potential financial instability.
  • Budget Control. It helps control the budget by ensuring that the costs are within a reasonable range of the loan amount, avoiding over-leveraging.

LTC influences the lender's decision-making

LTC helps influence the loan approval process and its rates and terms. 

  • Loan Approval. Lenders use the LTC ratio as a key criterion for approving loans. A higher LTC ratio might require more stringent terms or additional guarantees.
  • Interest Rates and Terms. The LTC ratio can influence interest rates and loan terms. Lower LTC ratios often result in better terms for the borrower.

How does the LTC ratio influence the financing I can secure for my development project?

The Loan-to-Cost (LTC) ratio significantly determines the amount of financing you can secure for your property development project. Lenders use the LTC ratio as a key factor in assessing the level of risk associated with financing a particular project. Here's how the LTC ratio influences the financing you can obtain.

Lenders evaluate the LTC ratio to gauge the level of financial commitment and equity the developer has in the project. A lower LTC ratio indicates that the developer is investing more equity into the project, which will be perceived as reducing the lender's risk. Conversely, a higher LTC ratio suggests that the developer relies more heavily on borrowed funds, increasing the lender's exposure to risk. Loan amounts are tied to the risk the lender perceives; the higher the risk, the smaller the amount of finance offered.

The LTC ratio directly influences the maximum loan amount you can secure for your project. Lenders calculate the maximum loan amount by multiplying the LTC ratio by the total project cost. For example, if a lender offers a maximum LTC ratio of 70% for a £1 million project, the maximum loan amount would be £700,000 (0.70 * £1,000,000).

The LTC ratio influences the terms and conditions of the loan, including interest rates, repayment terms, and loan-to-value (LTV) covenants. To incentivise lower-risk investments, lenders tend to offer more favourable terms for projects with lower LTC ratios, such as lower interest rates and longer repayment periods.

In summary, the LTC ratio is a critical determinant of the financing you can secure for your property development project. By understanding how lenders assess LTC ratios and managing your project's financial structure accordingly, you can increase your chances of obtaining the necessary financing to execute your project successfully.

What factors do lenders consider when determining the LTC ratio for a project?

Lenders consider 8 key factors when determining a development project's maximum Loan-to-Cost (LTC) ratio. These factors help lenders assess the risk associated with financing the project and determine the appropriate level of funding. The 8 factors are listed below.

1. Project Type 

The type of property development project, such as residential, commercial, or mixed-use, influences the LTC ratio. Lenders may have different risk appetites and underwriting standards for each project type, leading to varying LTC ratios.

2. Market Conditions

Lenders evaluate the local property market conditions, including supply and demand dynamics, property values, rental and vacancy rates. Market stability and growth potential can impact the LTC ratio, with stronger markets potentially allowing for higher ratios.

3. Developer Experience

Lenders assess the track record and experience of the developer or sponsor behind the project. A proven track record of completing similar projects can instil confidence in lenders and may lead to more favourable LTC ratios.

4. Location

The location of the project, including factors like neighbourhood demographics, proximity to amenities, transportation access, and economic indicators, influences the LTC ratio. Projects in desirable or rapidly growing locations may qualify for higher LTC ratios.

5. Project Feasibility and Viability

Lenders evaluate the feasibility and viability of the project, considering factors such as the project's business plan, construction timeline, projected cash flows, and exit strategy. Projects with well-defined plans and achievable goals may receive more favourable LTC ratios.

6. Total Project Costs

Lenders consider the total project costs, including land acquisition, development, construction, and soft costs, such as permits and professional fees. The LTC ratio is calculated by dividing the loan amount by the total project costs so that higher costs may result in a lower LTC ratio.

7. Equity Contribution

Lenders assess the developer's equity contribution to the project, representing the portion of costs covered by the developer's funds. A higher equity contribution can lead to a lower LTC ratio and may be viewed favourably by lenders as it demonstrates the developer's commitment and financial stability.

8. Exit Strategy

Lenders evaluate the developer's plan for exiting the project, such as selling, leasing, or refinancing upon completion. A well-defined exit strategy can mitigate risk and influence the LTC ratio as lenders seek assurance that the project will generate sufficient returns to repay the loan.

By considering these factors, lenders can better ascertain an appropriate LTC ratio that balances the project's risk with the developer's financing needs, ultimately facilitating prudent lending decisions.

10 Tips to optimise your LTC ratio (and improve a project's financing terms and profitability!)

The 10 best strategies to optimise your LTC ratio and enhance your project's financing terms and profitability are to increase equity contribution, negotiate lower project costs, improve project feasibility, secure pre-leases or pre-sales, optimise project timing, mitigate project risks, strengthen developer credentials, explore alternative financing options, engage with multiple lenders and consult with financial advisors.

1. Increase Equity Contribution

Increasing your equity contribution reduces the required loan amount, lowering the LTC ratio. This demonstrates financial strength and commitment to the project, potentially improving financing terms and reducing interest costs.

2. Negotiate Lower Project Costs

Explore opportunities to negotiate lower project costs with vendors, contractors, and suppliers. Lowering construction, development, and soft costs decreases the total project cost, allowing for a lower LTC ratio and better terms.

3. Improve Project Feasibility

Enhance the feasibility and viability of your project by conducting thorough market research, refining the business plan, and optimising the project's design and layout. Demonstrating a strong business case and potential for attractive returns can increase lenders' confidence and support a higher LTC ratio.

4. Secure Pre-Leases or Pre-Sales

If applicable, secure pre-leases or pre-sales agreements for commercial or residential projects. Pre-commitments from tenants or buyers assure future cash flows, reducing perceived risk and potentially allowing for a higher LTC ratio.

5. Optimise Project Timing

Timing is crucial in property development. Consider launching your project during favourable market conditions when demand is high, and financing terms are attractive. Capitalising on market opportunities can support a higher LTC ratio and improve project profitability.

6. Mitigate Project Risks

Identify and mitigate potential risks associated with the project, such as regulatory hurdles, construction delays, or market volatility. Implement risk management strategies to address these challenges and provide assurance to lenders, supporting a higher LTC ratio.

7. Strengthen Developer Credentials

Highlight your track record, experience, and expertise in property development. Demonstrating past successes and industry knowledge enhances your credibility as a developer, increasing lenders' confidence and potentially improving financing terms.

8. Explore Alternative Financing Options

Consider alternative financing options, such as mezzanine financing, joint ventures, or crowdfunding, to supplement traditional debt financing. Diversifying your capital stack can reduce the LTC ratio and improve overall financing terms.

9. Engage with Multiple Lenders

Leverage a development finance broker's network to engage with multiple lenders to compare financing offers and negotiate terms. Competition among lenders can work to your advantage, potentially leading to more favourable LTC ratios and financing terms.

10. Consult with Financial Advisors

Seek guidance from financial advisors, brokers, property professionals, and legal experts to optimise your project's financing structure. Their expertise can help you navigate complex financing arrangements and maximise profitability.

Implementing these strategies will help you optimise the LTC ratio for your property development project, improve financing terms, and enhance overall profitability.

5 risks are associated with a high LTC ratio and 7 measures to mitigate them.

A high Loan-to-Cost (LTC) ratio in property development projects can pose several risks, including:

1. Increased Financial Leverage. 

High LTC ratios indicate a significant reliance on debt financing, increasing financial leverage. This amplifies the impact of market fluctuations, interest rate changes, and unexpected project delays or cost overruns.

2. Cash Flow Pressure

High LTC ratios result in higher debt service obligations, which can strain cash flow, especially during project construction and lease-up phases. Insufficient cash flow may lead to liquidity issues, inability to meet debt payments and potential default.

3. Market Risk

Projects with high LTC ratios are more vulnerable to adverse market conditions, such as economic downturns, fluctuations in property values, or changes in demand and supply dynamics. Market downturns can impact project sales or rental income, affecting revenue projections and debt servicing capability.

4. Construction Risk

Projects with high LTC ratios may face heightened construction risk, including delays, cost overruns, and quality issues. Insufficient funds or unexpected expenses can jeopardise project completion, leading to delays in generating revenue and increased financing costs.

5. Exit Strategy Challenges

High LTC ratios can complicate exit strategies, particularly if market conditions deteriorate or project performance falls short of expectations. Limited flexibility in refinancing or selling the property may result in prolonged holding periods and increased financial strain.

To mitigate these risks associated with a high LTC ratio, developers can consider the following 7 measures.

1. Stress Test Your Numbers

Conduct thorough financial modelling and stress testing to assess the project's resilience to various market scenarios, interest rate fluctuations, and unexpected events. Identifying potential risks early allows developers to implement risk mitigation strategies and buffer against adverse outcomes.

2. Conservative Underwriting

Adopt conservative underwriting standards when evaluating project feasibility and determining financing terms. Ensure that revenue projections, cost estimates, and market assumptions are realistic and account for potential downside scenarios.

3. Equity Cushion

Maintain a sufficient equity cushion to absorb unforeseen expenses, mitigate cash flow volatility, and provide a buffer against market downturns. Increasing equity contribution reduces the reliance on debt financing and enhances financial flexibility.

4. Diversification

Diversify project risks by pursuing a balanced portfolio of developments across different asset classes, locations, and stages of the property development cycle. Diversification helps spread risk exposure and minimises the impact of adverse events on overall portfolio performance.

5. Phased Development

Implement a phased development approach to minimise upfront capital requirements and optimise cash flow generation. Breaking larger projects into smaller, manageable phases reduces financing needs, mitigates construction risk, and enhances flexibility in responding to market conditions.

6. Collaboration with Experienced Partners

Buy cheap - buy twice. Partnering with experienced developers, investors, or lenders can provide access to expertise, resources, and networks that help mitigate risks associated with high LTC ratios. Leveraging industry relationships and best practices enhances project execution and resilience.

7. Contingency Planning

Develop contingency plans and alternative strategies to address potential challenges or setbacks during the project lifecycle. Establishing clear risk mitigation measures and exit strategies assures stakeholders and enhances project resilience.

By identifying and mitigating risks associated with high LTC ratios, developers can enhance project sustainability, protect investor interests, and increase the likelihood of project success.

How does the LTC ratio impact my project's cash flow and return on investment?

The Loan-to-Cost (LTC) ratio significantly impacts a project's cash flow and return on investment (ROI) in property development. Here are 3 important considerations.

Cash Flow Implications

Higher LTC ratios typically result in larger debt obligations, leading to higher interest expenses and debt service payments during the project's life cycle.

Higher debt servicing requirements can pressure the project's cash flow, especially during the construction phase and the early stages of lease-up or sales.

Elevated LTC ratios may require developers to allocate more project revenues towards debt repayment, limiting available funds for operating expenses, capital improvements, and investor distributions.

Return on Investment (ROI)

The LTC ratio directly impacts the distribution of profits among stakeholders and investors. Higher LTC ratios often translate into increased financial leverage, potentially amplifying returns on equity investment if the project performs well.

However, higher leverage also magnifies the impact of project underperformance or adverse market conditions on investors' equity. In the event of lower-than-expected revenues or increased expenses, investors with higher LTC ratios may experience diminished returns or losses on their equity investment.

Lower LTC ratios, on the other hand, typically involve lower financial leverage and reduced risk exposure. While this may result in lower potential returns than projects with higher LTC ratios, it offers greater downside protection and stability in adverse market conditions.

Risk and Reward Trade-off

The LTC ratio represents a trade-off between risk and reward in property development. Projects with higher LTC ratios offer the potential for higher returns but also entail greater risk due to increased financial leverage.

Developers and investors must carefully evaluate the risk-return profile of projects based on their LTC ratios, considering factors such as market conditions, project fundamentals, and investment objectives.

Optimising the LTC ratio involves balancing maximising potential returns and managing risk effectively to achieve the desired level of profitability and investor satisfaction.

In summary, the LTC ratio influences a project's cash flow by determining the magnitude of debt obligations and debt service payments. It also impacts investors' ROI by amplifying returns on equity investment but exposing them to higher risk. Developers and investors should carefully assess the implications of different LTC ratios on cash flow dynamics, risk exposure, and potential returns to make informed decisions and optimise project profitability.

Are there alternative financing options available if the LTC ratio is not favourable?

Yes, alternative financing options are available if the Loan-to-Cost (LTC) ratio is not favourable or if traditional lenders cannot meet the project's financing needs. The alternative development finance options include bridge loans, mezzanine financing, preferred equity finance, joint venture finance, crowdfunding and peer-to-peer lending. 

What is a Bridge Loan, and how can it help?

Bridge loans are short-term financing options that provide interim financing until more permanent financing arrangements are secured. While bridge loans typically come with higher interest rates and shorter terms, they can help address immediate financing needs while working to improve the LTC ratio for long-term financing.

What is Mezzanine Finance, and how can it help?

Mezzanine financing involves securing debt capital between senior debt and equity in the capital stack. Mezzanine lenders typically provide higher-risk capital in exchange for higher returns. Mezzanine finance supplements traditional senior debt financing to bridge the gap between the LTC ratio and the total project cost.

What is Preferred Equity Finance, and how can it help?

Preferred equity investors receive priority over common equity holders regarding distributions and capital repayment but do not have the same security as debt holders. Preferred equity finance can provide additional capital while maintaining the LTC ratio within acceptable limits.

What is Joint Venture Finance, and how can it help?

Forming joint venture partnerships with equity investors or development partners can inject additional capital into the project, reducing the reliance on debt financing and potentially improving the LTC ratio.

What are Crowdfunding and Peer-to-Peer Lending, and how can they help?

Online platforms offer crowdfunding and peer-to-peer lending options that allow developers to raise capital from individual investors. These platforms may provide access to alternative sources of financing beyond traditional lenders.

Exploring alternative financing options requires careful consideration of the project's specific financing needs, risk tolerance, and long-term objectives. Developers should conduct thorough due diligence and seek advice from financial professionals to determine the most suitable financing structure for their projects.

Is it better to obtain financing based on LTC or LTGDV? What are the advantages of either?

Whether it's better to obtain financing based on Loan-to-Cost (LTC) or Loan-to-Gross Development Value (LTGDV) depends on various factors, including the stage of the project, risk tolerance, and lenders' preferences. 

Here's a comparison of the advantages of each:

Loan-to-Cost (LTC):

Focus on Construction Phase: LTC financing primarily considers the cost of acquiring and developing the property, making it suitable for projects in the construction phase. It provides funding for land acquisition, construction, and other development expenses.

Lower Risk for Lenders: Lenders often prefer LTC financing because it aligns with the project's tangible costs. Since the loan amount is based on the expenses incurred during development, it reduces the risk of overvaluation and ensures that funds are used for construction purposes.

Clarity in Budgeting: LTC financing offers clarity in budgeting by clearly understanding the project's cost structure. Based on the anticipated costs, developers can accurately estimate the loan amount needed, facilitating better financial planning and management.

Less Dependent on Market Fluctuations: Since LTC financing focuses on project costs rather than future market value, it may be less susceptible to market fluctuations. Developers can secure funding based on the project's concrete expenses, reducing exposure to volatility in property prices.

Loan-to-Gross Development Value (LTGDV):

Flexibility in Funding: LTGDV financing considers the future value of the completed project, providing flexibility in funding based on the property's potential market worth. It allows developers to access financing beyond construction costs, including overheads and contingencies.

Higher Leverage: LTGDV financing typically offers higher leverage than LTC, enabling developers to borrow a larger percentage of the property's future value. This increased leverage can optimise capital efficiency and enhance returns on investment, particularly in markets with strong appreciation potential.

Alignment with Profitability: LTGDV financing aligns with the project's profitability by considering its potential market value upon completion. Developers can leverage the expected appreciation in property value to secure financing that maximizes returns and enhances project profitability.

Mitigation of Equity Requirements: LTGDV financing may allow developers to reduce their equity requirements by leveraging the property's future value. This can free up capital for other investments or development opportunities, providing greater resource management flexibility.

In conclusion, choosing between LTC and LTGDV financing depends on the project stage, the risk appetite of both you and the lender, and your financial objectives. LTC financing is suitable for projects in the construction phase, offering clarity in budgeting and lower risk for lenders. On the other hand, LTGDV financing provides flexibility in funding, higher leverage, alignment with profitability, and mitigation of equity requirements, making it better suited for projects with strong appreciation potential and value-added opportunities. 

An example of LTC in a real-world case study

Case Study: Development of a Mixed-Use Property

A property developer plans to construct a mixed-use property comprising residential apartments, retail spaces, and office units in a prime urban location. The project involves acquiring land, obtaining permits, constructing the building, and leasing or selling the developed units.

Loan-to-Cost (LTC) Analysis

Item Cost Description Cost in £
Land Acquisition The developer purchases the land for £2 million. £2,000,000
Construction Costs

The estimated construction costs, including materials, labour, and contractor fees, amount to £8 million.

Soft Costs Additional expenses such as architectural design, engineering, permits, legal fees, and marketing expenses total £1.5 million. £1,500,000
Contingency A contingency fund of £500,000 is set aside to cover unforeseen expenses and cost overruns. £500,000
Total Project Cost Calculation   £12,000,000

Loan-to-Cost (LTC) Ratio Calculation

Loan Amount: £9,000,000
(Assuming the developer seeks financing for 75% of the total project cost)
Total Project Cost: £12,000,000

LTC Ratio = Loan Amount / Total Project Cost
LTC Ratio = £9,000,000 / £12,000,000
LTC Ratio = 0.75 (or 75%)

Interpretation of the example

In this case, the Loan-to-Cost (LTC) ratio is 75%, indicating that the developer plans to finance 75% of the total project cost through a loan. The remaining 25% of the project cost will be covered by the developer's equity investment (sponsor's equity).

3 Advantages of LTC Financing in this example

1. Clear Budgeting

LTC financing allows the developer to accurately estimate the loan amount needed based on the project's concrete expenses, including land acquisition, construction costs, soft costs, and contingency.

2. Lower Equity Requirement

By securing financing for a significant portion of the project cost, the developer can reduce the equity investment required, thereby preserving capital for other investments or development opportunities.

3. Risk Mitigation

LTC financing aligns the loan amount with the project's tangible costs, reducing the risk of overvaluation and ensuring that funds are used for construction purposes.

In this case study, the developer plans to utilise LTC financing to fund the development of a mixed-use property. By calculating the LTC ratio and securing financing for 75% of the total project cost, the developer can proceed with the project while effectively managing costs, optimising capital efficiency, and mitigating risk.


The Loan-to-Cost (LTC) ratio is an indispensable metric in property development finance. It helps gauge the loan amount relative to the total project cost. By ensuring a balanced approach to funding, the LTC ratio mitigates lender risk and aligns the financial interests of borrowers and lenders, ultimately supporting informed decision-making and project viability.


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