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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Loan to enterprise value

What is loan to enterprise value, and how does an acquisition lender read it?

ONE OF 416 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

Loan to enterprise value is a business's debt, counted down to and including the lender's own tranche, divided by the value of the whole business; acquisition and private credit lenders, who often shorten it to LTV, use it to measure the equity cushion beneath them. At completion the value is usually the price paid: US$60m of debt on a US$150m acquisition is 40%, so the business can lose 60% of its value before it is worth less than the debt. Afterwards the value rests on a multiple of earnings set by a valuer, the owner or the lender, and a lender reads a falling multiple and falling earnings together.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// THE FULL PAGE

Loan to Enterprise Value: a Worked Example →

Earnings fall a tenth; the cushion under the debt falls a third.

// WHAT IT IS NOT

The equity contribution is the share of the purchase cost the buyer funds itself, fixed at completion; loan to enterprise value measures debt against what the business is worth, and moves as earnings and multiples do.

// WORKED IN

// NEXT TO IT

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