Quick answer
Equity is the part of something you own outright once the debts against it are subtracted. For a property, it's the market value minus every loan secured on the title. For a business, it's total assets minus total liabilities, which is the owners' stake on the balance sheet. Lenders care about both: property equity sets how much secured money is available, and business equity shows how much risk the owners carry.
Key points
- Property equity = current value minus all loans secured on that title
- Owners' equity = total assets minus total liabilities on the balance sheet
- Lenders only lend against part of your property equity, so usable equity is always smaller
- Negative owners' equity is a warning sign that makes unsecured lending harder
Ask a bank manager and an accountant what equity means and you may get two different answers, both correct. The banker is usually thinking about a house or a building. The accountant is thinking about the bottom section of a balance sheet. In business lending, both versions turn up in the same conversation, so it helps to keep them apart.
Property equity: what the title is worth to you
Property equity is the current value of a property less every debt registered or noted against it. A first mortgage, a second mortgage, a caveat securing a private loan: all of them come off the value before you arrive at your equity.
Two details trip people up. First, the value that counts is the lender’s valuation, not the figure you’d hope to sell for. Second, equity is not the same as what you can borrow. Every lender sets a ceiling on combined borrowing, expressed as a loan-to-value ratio, and the portion that sits under that cap is your usable equity.
Owners’ equity: the balance sheet version
On a company’s balance sheet, equity is what’s left after you subtract total liabilities from total assets. business.gov.au defines it in exactly those terms: the owners’ interest in the business. It includes the capital the owners put in plus profits kept in the business over the years.
Lenders read this number as a measure of how much skin the owners have in the game. A business with healthy owners’ equity can absorb a bad quarter. One where liabilities outweigh assets, often called negative equity or a deficiency, looks fragile on paper even when trading is fine, which is why the debt-to-equity ratio shows up in credit assessments.
Why equity carries so much weight in Australian lending
Property is the security Australian lenders like best. The Reserve Bank’s 2018 review of small business finance found that owners struggle to borrow much beyond around $100k without security, and that the availability of housing collateral has a significant effect on both the cost and availability of business debt. In practical terms, owners with property equity tend to have more doors open to them, and usually cheaper ones.
That’s also why the order of loans on a title matters. A bank in first position takes the first slice of value; a second mortgage lender works with what’s left. Want to see your own numbers? Our property equity calculator does the subtraction for you, or you can ask us to look at your options.
Worked example: equity versus usable equity
A Geelong electrician owns a home the lender values at $900k, with $520k left on the home loan.
| Step | Figure |
|---|---|
| Lender’s valuation | $900k |
| Less existing home loan | $520k |
| Total equity | $380k |
| Lending cap if set at 80% of value | $720k |
| Less existing home loan | $520k |
| Usable equity at that cap | $200k |
On paper the electrician owns $380k of the house. In practice, a lender capping at 80% would make roughly $200k available. A different lender with a higher cap might offer more, usually at a higher cost, while a lower valuation would shrink the figure straight away.
Equity, equity release and equity finance
Three similar phrases, three different things. Equity release means borrowing against the property equity you’ve built up. Equity finance, as business.gov.au explains it, means giving an investor part ownership in return for funds, with no repayments but a permanent share of profits. Our comparison of debt vs equity funding walks through when each makes sense.
Related terms: net worth, security, valuation and unencumbered.
Sitting on equity your business could use?
If the bank has said no or simply can’t move fast enough, property equity is often what turns a hard application into a straightforward one, through a home equity business loan or a second mortgage. Jot down the valuation you expect, the balance owing and the job the money needs to do, then put it in our short form; sixty seconds is plenty. Asking costs nothing in credit terms, because no enquiry is lodged against your name at this stage. Nobody auctions your application to a list of funders either. One person with property-lending experience reads it and phones you. Honest numbers on the debt and the property get you a straight answer sooner.
Frequently asked questions
What's the difference between equity and usable equity?
Equity is the full gap between what the property is worth and what's owed on it. Usable equity is the part a lender will actually let you borrow against, because lenders cap total lending at a percentage of the value. If a lender caps lending at 80% of value, usable equity is that 80% figure minus the existing debt.
Can I use home equity for a business loan?
Yes. Many Australian business owners secure business borrowing against their home, either through a top-up with their bank, a second mortgage behind the existing home loan, or a short-term caveat loan. The home is at risk if the loan isn't repaid, so the term and the plan for repaying it matter.
Who decides what my property is worth?
The lender does, through its own valuation. That might be a desktop estimate, a kerbside look or a full inspection. Your own estimate or an agent's appraisal is a starting point, but the lender's valuation is the number your equity is measured against.
Does negative equity on my balance sheet stop me borrowing?
It doesn't automatically, but it makes unsecured lending much harder because liabilities exceed assets. Lenders will look for strong cash flow, a clear reason for the deficit, or property security to offset it.
Is equity the same as equity finance?
Not quite. Equity finance means selling a share of your business to an investor in return for capital. It uses the same idea of ownership, but you're giving part of the business away rather than borrowing against what you own.