Quasi equity, also known as quasi capital, is a form of debt that shares some traits with equity.
The characteristics include flexible repayment terms or subordinated debt. This means quasi equity it is either unsecured or has lower priority than other debt.
When is quasi equity used?
Quasi equity is preferred as a source of finance when share capital and debt financing are not possible, e.g. due to the legal structure of the organisation. The structure of the quasi-investment is based on the projected cash flow of the business.
Unlike loans, quasi equity depends on the future performance of the company. This means if the enterprise does not achieve its forecast financial performance, the investors may receive little to no return. On the other hand, if the organisation performs better than predicted, lenders will receive a higher financial return.
Any company can make use of quasi equity, but it’s most beneficial to social enterprises who cannot offer shares, or in a situation where a loan would be too risky. The main benefit of quasi-equity compared to other alternatives is the balanced distribution of risk and reward between lender and investor.