Any tangible asset (something you own that has value) can create equity if there is nothing owed against it (it’s not being used as collateral on a loan), or if the value of the asset exceeds the amount owed against it. Equity then represents a monetary amount that could be realized if the asset were liquidated (sold).
You can borrow against that equity. Many lenders will make you a loan using the equity as collateral by taking a security interest in the asset that creates the equity. This is called an equity loan.
Most often an equity loan is secured on a residential property, and most often that property is the borrower’s home or primary residence (as opposed to a rental or vacation property that the borrower owns). For the average homeowner, their home represents the most valuable asset they own and the most equity they have in a single asset.
For that reason when we hear the term “equity loan” many times we assume it means a loan on a home or a residential property. But a lender can use equity from any asset a borrower owns to make a loan as long as the lender can perfect a security interest in that asset. Sometimes perfecting a security interest is as easy as having the borrower sign a document pledging the asset as collateral on the loan. Other times a Uniform Commercial Code (UCC) filing can perfect a lender’s lien on furniture, equipment, and other personal properties that represent equity to the borrower.