Is a ratio used in the real estate sector that compares the cost of financing a real estate project with the total construction cost of the project. This ratio helps the financier to determine the risk of financing the project. It also helps the developer understand how much capital to put into the project. This ratio accompanies the LTV as a tool for understanding and analyzing the risks involved in a commercial real estate project and serves both the developer and the lender.
The formula used to calculate the LTC is simple and easy to understand, obtained by dividing the cost of financing the development by the total construction cost.
For example: Consider that the costs of a commercial project amount to €200,000, and to ensure that the borrower has sufficient capital to carry out the project, the lender grants a loan of €160,000. The LTC on this project would be obtained by dividing €160,000 by €200,000, so the LTC would be 80%.