Equity capital is absolutely necessary, for example, if you want to buy a property or make a major purchase. Above a certain size, you will only receive financing from a financial institution if you have a correspondingly high amount of equity capital. The general rule is that the more equity you have, the better. This applies both if you want to apply for a construction loan and for your company.
Various types of equity
You can use a variety of funds to finance a construction project. Not only securities and cash are counted as assets. In individual cases, you always have to make a decision under economic aspects as to which funds you want to contribute to financing. However, it is recommended that you only use capital investments if you benefit more from relief through interest on loans than from the return on your capital investment. The following types of equity capital exist:
[list] [*]Home savings credit balances[*]Personal contribution (muscle mortgage)
[*]Related loans
[*]Employer loans
[*]Life insurance
[*]Classical equity capital
[*]Other (loans from public/government support, realisable receivables due from third parties)
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Building society savings: You can transfer your building savings contract, which is in the savings phase, to your bank without having to cancel it. In addition, a building savings contract that is not yet due can be used for interim financing.
Own contribution (muscle mortgage): In the context of renovation and refurbishment work, the bank also recognises own contributions made by you as an equity investment. The hourly wage of a craftsman is used as the basis for calculating your services. Contributions made by family members and friends may also be taken into account if you provide evidence that the persons have the skills that are necessary to to provide the corresponding services in a professional manner.
Related loans: If you can raise additional capital from relatives and repay the instalment easily, you do not need to notify your bank of a relative loan. The processing of private loans can also be completely customised.
Employer loans: An employer’s loan is not considered collateral, but still has equity character when you apply for financing. For tax reasons, you must make sure that a correct loan agreement is concluded between you and your employer. Term, repayment, interest and loan amount must be contractually agreed. The interest rate should correspond to the average Pfandbrief interest rate. A certain limit must not be fallen below, otherwise it is a monetary advantage for you.
Life insurance: Selling your life insurance is a particularly rigorous step. Instead, you can assign your life insurance policy to your bank as collateral in order to increase the loan amount and thus the scope of your collateral by the surrender value.
Classic equity capital: This includes proceeds from the sale of securities, savings on overnight money accounts and, of course, your cash. However, the sale of securities is only worthwhile for you if it was acquired in a high-interest phase and a loan was taken out in parallel during a low-interest phase. In this case, the income partly covers the interest on the loan.
Equity for construction financing
The amount of your equity capital plays an important role in the financing of your property. The more equity you can bring in, the more favourable loan accounts your bank will grant you. The more equity you have, the less outside capital you will need for your project. Zwars are today also construction financing without capital possible. However, your chances are many times better if you can prove and contribute financial resources. The amount of money you have to invest in a project varies greatly between different banks and credit institutions. You should calculate with a share of 20 to 30 percent.
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