Business homework- what is insufficient equity?
A bank refuses a loan citing 'insufficient equity' as the main reason? What does insufficient equity mean??
- Miz TLv 71 decade agoFavorite Answer
"Equity" in this instance refers to ownership of mortgaged property. The equity is the value of the property over and above the amount owed on it.
For example: The building and grounds have a fair market value of $2,500,000. The mortgage has a principal balance of $1,750,000. The equity is the difference: $750,000.
For the business as a whole, the balance sheet is divided into two sides: The total value of the Assets side is equal to the Liabilites (amount owed by the business) plus the Owners' Equity (ownership rights). Or it could be stated, Owners' Equity is equal to Assets (total value) minus Liabilities (total value).
- 1 decade ago
the one applying for the loan has no capacity to pay