Own equity

Downpayment is the part of the price of an investment that the company adds to the costs. In addition to downpayment resources, a bank loan or some kind of support can usually be used to finance the investment. Banks usually stipulate how much own funds your company must have if you want a loan. However, it also depends on the investor's decision as to when and how much he can own funds the development.

Downpayment is the part of the price of an investment that the company implementing the investment adds to the costs. Another part of the price of the investment can be covered by the company, for example, from an investment loan. This is common, especially when the terms of the bank loans are good: the interest rate is low, and the creditor financial institution is flexible. The bank is happy to give a loan for a well-founded investment plan during a calm period. He hopes to get the loan money back with interest.

At the same time, in order to reduce risks, banks strive to share the burden of providing the capital necessary for development. In addition, banks also want to filter out frivolous partners. These are the reasons why banks usually ask for a downpayment, i.e. their own share, when financing an investment. This means that part of the costs of the investment is financed only by the bank. The other part of the costs must be paid by the investor out of his own pocket. 

Downpayment is a basic condition for financing almost all investment. It is very rare when an idea can be implemented entirely from a from assistance or loan, the bank does not ask for a downpayment. Lending without a downpayment can usually occur for less important, cheaper investments. In such cases, however, the cost of the investment often has to be paid in advance, so the investor has to contribute his own money to the development at least for a while. 

The amount of the downpayment depends on many factors. If the investment is more risky, the bank may demand a higher proportion of own funds. At the same time, the level of self- own funds may be lower if state aid or other non-refundable grant can be requested for the purpose of development.

The downpayment is typically at least 10 percent. If a company cannot put at least one tenth of the price of the planned investment into the project, the bank will not risk its money either. The cases when we can be happy if the bank finances at least 40 percent of the investment costs are much more common. In this case, 60 percent of the costs be charged to our company. 

The amount of downpayment is therefore highly dependent on the project and the bank, but its amount can also be influenced by our own considerations and aspects. 

Many people think that the lower the downpayment, the more favorable the financing mix for their company. In such cases, however, the company can easily fall into debt. Others believe that they pay what they can with their own money and do not take out a loan, or only require very little loan. This is sometimes a wise decision, but if we go too far it can endanger the operation of our company. If we tie up a lot of the company's resources for years due to a development, we will not have money for another investment. We don't have credit, but we can't expand the company's activities either. Here, too, the well-thought-out, planned decision is the winner. Of course, if the necessary conditions are met.