The amount borrowed compared to the value of the collateral, expressed as a percentage.
For example, a business purchases a $200,000 piece of equipment and the lender finances $160,000, resulting in a loan-to-value ratio of 80%. A higher LTV represents more lender risk — most equipment lenders prefer an LTV below 85% to maintain a cushion in case the collateral needs to be liquidated.
Why it matters: It determines how much down payment is required; a lower LTV protects the lender but requires the borrower to tie up more cash.
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