2016-12-15 00:00:00 Equity English Find out what negative equity is, how to determine if an asset is in negative equity, and how it affects small business owners. https://d1bkf7psx818ah.cloudfront.net/wp-content/uploads/2017/10/08213834/Small-business-owner-reviews-negative-equity-in-clothing-store.jpg Small Business Term: Negative Equity

Small Business Term: Negative Equity

0 min read

Negative equity occurs when the money you borrowed to buy an asset, such as an office building, is more than the value of the asset. For example, say you borrowed $100,000 to buy an office building two years ago, and your outstanding mortgage is $80,000. The real estate market crashes and your office building is worth $70,000, which is lower than the amount of your outstanding mortgage. In this case, your office building is in negative equity.

When you have a property in negative equity, you need to pay off the difference between the loan and the property value before you can sell it. For instance, if the outstanding mortgage on your property is $80,000 but your property is worth $70,000, you need to come up with $10,000 to pay to your lender before you can sell the property.

References & Resources

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

Related Articles

How Accounting Professionals Can Protect Their Reputations on Social Media in a Crisis

Social media is a powerful marketing tool and a great way to…

Read more

Establishing Term Limits for Non-profit Board Members

Setting term limits helps your nonprofit board function at full capacity. New…

Read more

Deciding if a Short-Term Commercial Lease Is Right for Your Business

Are you ready for your first official commercial space? Figuring out commercial…

Read more