The proportion of total project cost financed through debt.
Loan to Cost (LTC) is a real estate and project finance underwriting ratio comparing the total construction debt facility against the complete budget cost of developing the project.
What percentage of the project's development bill is funded by the bank loan vs. what percentage comes out of the sponsor's own pocket.
Developing a commercial warehouse park costing ₹100 crore (land, approvals, construction, financing charges). A lender providing a ₹65 crore construction loan is financing at 65% LTC.
Land acquisition: ₹30 crore. Construction & civil works: ₹55 crore. Soft costs & interest during construction: ₹15 crore. Total cost: ₹100 crore. Bank facility: ₹60 crore. LTC = 60%.
Lenders usually require the sponsor's equity to be deployed upfront before releasing construction loan disbursements, preventing developers from starting projects without genuine skin in the game.
Higher LTC boosts Equity IRR but reduces financial safety margins. Institutional underwriting typically caps LTC between 55% and 70% based on asset class maturity.