Sweat Equity Definition

Sweat equity is a colloquial term describing a putative increase in equity derived through a contribution of time or effort, as opposed to cash-or financial equity. For example, in a startup business one partner may provide money to pay for operating expenses while another party provides time and effort to get the business going; the first partner provides financial equity while the second partner provides sweat equity.

Another use of the term focuses on the increase in value of real estate derived by the owner making improvements to the property. For example, replacing counters, painting, and grooming the yard are forms of sweat equity.