Equity Capital

Capital is divided into two types: equity (your own funds) and borrowed capital. The former is the money that is available from one's own resources.

For companies in particular, equity capital is an important factor in assessing their economic security. One key figure for this is the equity ratio. This expresses the share of equity in total capital and provides information about a company's financial stability and independence. A high equity ratio indicates few debts and thus a low risk for potential investors and business loans.

For private individuals, equity or equity capital usually becomes of relevance when buying a car or financing a property. Moreover, the term “down payment” will be familiar to many from instalment purchases. Unlike with a personal loan, for a mortgage, borrowers must usually contribute at least 20% of the purchase price as equity, i.e. from their funds. The higher the equity share, the more security for the lender. This can also have an impact on the monthly payments and the interest rate. The amount of equity that must be contributed depends on the price of the property, the credit rating and income of the borrower.