What is equity?

Equity has two different, but related meanings. On the one hand it is the term applied to the money the owner puts into the business – money that is not borrowed or is borrowed from relatives without any requirement to pay it back. Equity also means the same as “net worth,” which is the difference between the assets and liabilities of a business. It is the portion of the assets that the owner would get after all the liabilities were paid. Equity is one of two sources of capital for a business. The other is debt. Equity comes from the owner and debt comes from others, usually banks or other financing agencies.