Equity is the owners' stake in a business. In simple terms, it is what would be left for the owners if the company sold all its assets and settled all its debts. On a balance sheet it is the difference between total assets and total liabilities.
Equity as a funding choice
When a business needs money, equity is one alternative to borrowing. Raising equity means bringing in investment in exchange for a share of ownership, rather than taking on debt. Each route has trade-offs.
- Equity funding brings in money without a repayment commitment, but it dilutes ownership.
- Debt funding keeps ownership intact, but carries the commitment to repay.
Why it matters when borrowing
A lender may look at a company's equity position as part of understanding its financial health. A business with reasonable equity behind it can present a stronger overall picture. Equity and debt are not opposites; many companies use a sensible mix of both.
Credicorp lends only to UK limited companies and LLPs for business purposes. Borrowing with us lets a company raise funds without giving up ownership. We assess affordability first, and the amount, rate and terms that apply are set out in your offer. We do not take personal guarantees from directors.
See also: Understanding the main business insolvency and rescue options, What is accrued interest? and What is capital?.