Glossary

Letter of Intent

A letter of intent is a document used to outline one or more agreements between parties before the agreements are finalized. 

Leverage

Leverage is the use of borrowed capital with the expectation that the profits will exceed the interest payable. 

LIBOR

The LIBOR, or London Interbank Offered Rate, is the interest rate that London's leading banks have estimated they would be charged were they to borrow from other banks. It is one of the most common benchmark interest rate indexes used to make adjustments to adjustable rate mortgages. 

Lien

A lien is the legal right of a lender to sell the property of a borrower who doesn't meet the obligations of the loan contract. 

Lien Position

Lien position determines the order in which the investors benefit from liquidation of the property that secures the loan. First lien position goes first, second lien position goes second, and so on. 

Limited Liability

Limited liability is liability that does not exceed the amount invested. It protects an investor's assets from being seized to satisfy a creditor's claims. 

Limited Liability Company (LLC)

Specific to the United States, a limited liability company (or LLC) is a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. LLCs are not corporations, rather they are companies that provide limited liability to their owners. 

Limited Partnership

A limited partnership is two or more partners conducting business together. One or more of the partners is liable for the amount of money they have invested. 

Liquidity

Liquidity is the degree to which an asset can be quickly bought or sold without changing the asset's value. 

Loan-to-Cost Ratio (LTC)

Loan-to-cost ratio is a ratio that compares the loan amount to the cost of building the project. (If you want to build a $20 birdhouse, and are borrowing $10, then the LTC ratio is 50%.) It is used to help lenders assess risk. As the ratio increases, so does the risk. 

Loan-to-Value Ratio (LTV)

Like the loan-to-cost ratio, lenders use this to assess risk. Loan-to-value ratio is determined by dividing the mortgage amount by the appraised value of the property. The higher the ratio, the higher the risk.