When a lender advertises a higher “LTC” it doesn’t always mean more proceeds!

First, it is important to understand how lenders define “cost,” because this directly impacts leverage and proceeds. Not every lender looks at total project cost the same way. Some lenders will include interest reserves in the total cost basis, while others will exclude them. The same goes for financing fees, developer fees, soft costs, and certain third party reports. One lender may advertise a higher LTC, but if they exclude key components of the project budget from their cost calculation, the actual loan proceeds can end up being lower. We run into this frequently where a lender promoting a more aggressive LTC ultimately provides less capital than a competing lender who includes more of the total project cost in their calculation. The structure of how cost is defined is just as important as the headline leverage number.

When you look at banks and credit unions, they typically approach these transactions with a full underwriting of both the sponsor and the project. They are often evaluating global cash flow, personal income, liquidity, tax returns, and the projected income of the property. Their leverage is generally more conservative on a true LTC basis, but the cost of capital is significantly lower. For well capitalized sponsors with strong financials and time to move through underwriting, this can be an excellent long term strategy. The tradeoff is speed, documentation, and flexibility. Banks often require detailed budgets, fixed contracts, and tighter draw controls, and they may be less willing to fund certain soft costs or speculative elements of a project.

Private lenders, hard money lenders, and debt funds operate very differently. Their underwriting is typically more asset-driven and timeline focused, with less emphasis on personal income and historical tax returns. They can close much faster and are often willing to structure higher leverage on total project cost, including funding interest reserves and certain soft costs that banks may not recognize. For active builders and repeat sponsors, this flexibility can be critical. The tradeoff, of course, is a higher cost of capital. However, when structured properly, the additional proceeds and speed to close can outweigh the pricing difference, especially when the capital allows the sponsor to move quickly, preserve liquidity, or scale into additional projects.