Question

Why would a lender prefer to see equity financing included in a project before they agree to provide the debt financing?

Accepted Answer

Lenders want to see equity financing—which is the owner&#x27;s own cash put into a project—because it protects them from losing money. When owners use their own money, they have &#x27;skin in the game.&#x27; This means they are sharing the risk with the bank. If a project runs into trouble, the owner will work much harder to fix it because they stand to lose their own money first. Think of it like a down payment on a house; if you put your own money down, you are more likely to keep up with the mortgage payments instead of just walking away. Equity acts as a buffer. If the value of the project drops, the lender is safer because the owner&#x27;s cash covers the first part of that loss. Because of this, equity financing makes the lender more confident that the owner is serious and that the loan will be paid back.

Why would a lender prefer to see equity financing included in a project before they agree to provide the debt financing?

Lenders want to see equity financing—which is the owner's own cash put into a project—because it protects them from losing money. When owners use their own money, they have 'skin in the game.' This means they are sharing the risk with the b....

Community Answers

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Why would a lender prefer to see equity financing included in a project before they agree to provide the debt financing?

Lenders want to see equity financing—which is the owner's own cash put into a project—because it protects them from losing money. When owners use their own money, they have 'skin in the game.' This means they are sharing the risk with the b....

Community Answers