Do you have home repairs that you want to finish but just can’t because you lack the cash to do so? Are you thinking of some investment opportunities that you would like to get into, but can’t because of limited funds? Do you have medical bills that you need to pay off immediately? If you are in great need of money but don’t have the means yet to provide for this need, you can consider home equity financing.

But before you get into any of this stuff, you need to understand how the system works. How does financing with home equity work? First, you need to know what the meaning of home equity is. It is the market value of your property minus the total amount of money you owe that is associated with your home.

Applying for home equity financing means you can borrow money from your credit line which is in the form of the equity of your home. If you’re still confused as to how this works, think about your credit card. Your plastic has a credit limit and as in the case of this type of loan, your home’s market value minus all the deductions would be the limit on how much you could borrow from the lender.

But unlike the case of a credit card which is an unsecured loan, a home equity loan does have security procedures which involve your property being the prime collateral for your debts. So only do this if you have emergencies and do it sparingly. You run several risks if you don’t properly plan on how you can pay off your loans and not lose your home in the process in any case you fail to make payments.

Some cases of non-payment actually resulted to foreclosure which is what you should avoid. Many people have lost their homes because they borrowed money from their home’s equity without thinking of the consequences and the probability of not being able to pay their dues on time. That is why it is advisable that you carefully plan out before you take out a loan on your equity. And once you do, make sure that you keep up with your payments in a timely manner. Although you can actually make minimum payments on your loan, try to pay more than the minimum to cover for the interest rates.

Take into consideration that the state of your credit limit solely depends on the equity of your property so if the banks and lenders feel that the value of your home is decreasing, they may reduce your credit limit or even freeze your account. That is why it is very important that you do this only on extremely tight situations and make sure you arrange for a payment plan in which you have assigned a certain budget to pay off existing loans tied up to your property. That way, your home equity will not decrease in value and you still have your credit limit intact especially on emergency cases. Remember that home equity financing could help you but it is only a temporary solution to your money troubles.

Is scarcity of funds obstructing your venture? Are you looking for ways to finance your new business but dread the thought of monthly loan installments? If you said yes to the above, equity financing is what your business needs. Equity financing helps you raise funds without having to shoulder the burden of repayment.

It ain’t money for nothing. Sure, equity financing is not a loan, but it isn’t a gift either! When you raise equity funds, you part with an ownership interest in your company. This ownership takes the form of common stock or preferred stock. If the company makes a profit, investors receive a part of it in the form of dividend. Apart from taking a stake in the company, investors may also participate on the company’s board of directors and take an active role in managing the business. Bet that’s stuck in your throat!

While informal sources such as family and friends can provide equity financing, the most important source of professional equity funding are venture capitalists. These are deep-pocketed financial wizards in the business of investing in new or riskier businesses in exchange for very large returns.

So, what do equity investors look for?

Growth potential: Equity investors are usually aiming for the stars, and their only concern is how soon there can get there. That is why companies on a high growth path, capable of delivering solid returns on investment are more likely to get financing.

Exit strategy: Venture capitalists in particular, look for companies that have a clear exit strategy. They don’t want to hang around till it’s time to walk into the sunset. Five to seven years is all they’ll give you, and in that time they’ll expect to have trebled their investment at a minimum. If they can’t find a way of pulling out by way of a strategic sale, they won’t play ball.

Management quality: Since equity financing is all about investors climbing aboard, you can bet they’ll want to know who is captain of the ship. They pay more attention to the capabilities of the management team than anything else.

While interest payments won’t loom large over your head with equity financing, it will make a different set of demands on your business. Weigh the pros and cons before you take a decision.

The best part is that you pay back your investors only if the business does well. That way, you’re not the only one bearing financial risk. The right venture capitalist can bring in valuable skills, experience, contacts and assist you with strategy and decision making. What’s more, if the business does well, you are likely to secure further equity financing from existing investors.

On the flip side, you will have to accept a dilution in your shareholding. Also, some investors can be very high maintenance – so be prepared to be answerable to a bunch of hawks! This is the hardest for independent minded entrepreneurs.

Once you have decided to go in for equity financing, get cracking on your business plan. Talk to your financial and legal advisers before you reach out to potential investors. Be clear in your mind on the following:

a) How much funding is needed and for what purpose?
b) For how long would you need these funds?
c) How much stake are you are willing to part with?

It’s best to answer these questions in your business plan and tailor the information according to the specific investors you plan to approach. Equity financing can be a boon for new entrepreneurs if it is used appropriately with targeted goals. Do refer to books like “Financing Your Small Business” and “How to Raise Early Stage Private Equity Financing” from and “Financing Your Small Business” from to find out how it can work for you.

There is great similarity between capitalism and nature. In both instances it is to try to make the most with the least.

In nature a laying chicken’s job is to gestate an egg and deliver it into the nest. With proper care and nutrition the chicken will fabricate the egg and create the shell that will permit the yoke to be protected. The delivery which can be a daily affair requires a lot of stretching on the part of the chicken, to put it mildly. The egg attains the maximum size for the minimum space. The shell has to be firm enough to sustain the tremendous pressure of delivery but thin enough so if the chick would like to come out eventually it will not be so thick as to be unbreakable.

So much for nature. Now let’s get on with capitalism and real estate. If you are on the lookout to purchase a home in these trying times, great opportunities exists but you have to make sure that you will be able to invest enough equity in your house so you will protect yourself and give yourself breathing room in case something bad happens. Look back at the last 6 months and feel the pain for those who were not prudent and did not possess a strong enough shell.

Those past fabulous offers for buying a property with NO CASH DOWN are seen today as the height of irresponsibility. Only somebody that can prove that he is financially solid can afford to buy something with no down payment. If not, at the first whiff of financial uncertainty, the lending institutions will suddenly, and often without much notice, pounce on the unfortunate lender and demand their pound of flesh. Your home will be left unprotected and your financial shell that should also be your shield will not be solid enough to protect you.