Whether you’re an employee in a startup company, a business owner, a homeowner, or even a simple regular citizen, there is a big chance that you’ve come across the term, equity. However, the term tends to be a confusing one for most people. In most cases, this is because it is a small term whose scope is extremely ginormous. Its use and meaning cut across a broad spectrum of scenarios, industries, businesses, and individuals. In other words, equity is a relative term that in one way or another, basically represents value and ownership to some extent. However, it is mostly used in the sectors such as the finance, business, and real estate industries. But as straightforward as it may sound, it is not a new thing for one to read dozens of articles, publications, and explanations about equity and still not come out with a clear understanding of what it is all about. So here are 5 tips to understanding equity.
1. Know the meaning
From a financial point of view, equity can be defined as the difference between what is owned and what is owed in terms of value. In simpler terms, equity is the generalized difference between the value of assets and liabilities that one owns. In business, an investors equity is basically value or amount of shares the investor owns in that particular company. In the latter case, equity is often expressed as a percentage.
2. Know the types available
As you may have grasped from the point above, equity is mostly to do with value. However, there are various types of equity. For instance, homeowners’ equity refers to the value of lien or ownership you have on your property. When you’ve cleared 60% of your mortgage, for instance, you basically own 60% of that property. Assuming you woke up one day and the value of your property increased twofold, this would increase your home equity with a similar margin. Some companies also issue equity to employees in the form of shares and stock as a way to compel them to stay on board.
3. Know how it works
Different types of equities work in different ways. The best way to know whether or not a particular option can favor you is to understand how it works in the first place. For instance, stock options and shares in companies have certain limitations. On the other hand, your homeowners’ or property equity will always have limitations when it comes to borrowing from the certain financial organizations.
4. Know how it can benefit you
Before investing in or buying equity in a particular company or property, it is important to understand how much they can do for you. In most cases, home equity and business equity can both give you access to funding when you need it. It can act as a line of credit for small, top-up, second loans, and even lifetime mortgages from lenders such as responsibleequityrelease.co.uk. What can your equity do for you?
5. Think some more about you
At times, you’ll want to consider investing in equities that aren’t too demanding or too limiting when it comes to responsibilities and salability. Is your equity transferable? Is it expandable or will it just limit your capacity in the name of preventing conflict of interest?