Lack of funding opportunities is a common phenomenon in social enterprises. The meaning of quasi-equity is the use of a business plan and worksheet by businesses to offer combinations of risks and return so that they can get investors. This way of attracting investors is only meant for conventional businesses. The ones who have to suffer are the social enterprises that find it difficult to attract investors that way. Instead, they use two innovative financial vehicles- Quasi-Equity Debt and Social Impact Bonds to enhance their funding opportunities from the investors.
Quasi capital is also known as revenue participation investment. It helps in filling the space that lies in between debt and capital. It is the kind of investment where the investee’s future revenue stream is calculated based on the financial return. It is a useful source of finance.
A quasi-equity loan arises when an enterprise suffers a liability at a situation when the director is under a compulsion to repay the company for the amount involved.
While understanding the quasi-equity meaning, one must know that there is a sheer lack of funding opportunities when it comes to social enterprises. Therefore to overcome this form of hindrances, the enterprises make use of a financial vehicle that has the association of properties of debt along with the equity. However, it is also important to understand that if it is a non-profit enterprise then it cannot acquire equity capital. This states the fundamental fact that Quasi-equity debt is more useful in terms of security. It is a form of debt and also it is important to consider that its returns are indexed against the financial performance of the enterprise. The debt also requires the holder of the security has no direct entitlement towards the ownership and power of the enterprise.
Besides, the terms and the conditions offer loans to the enterprise so that they can carry out the operations of the enterprise smoothly. These forms of securities are purchased by social investors. The security opens the door for social enterprises so that they can offer other lenders and banks a competitive investment opportunity.
The revenue participation agreement or quasi-equity is a kind of financial tool that provides an opportunity for the investor and as well the investee to share the reward and risk of enterprise in a flexible manner that debt does not allow. This applies to a situation where equity financing is not possible. However, it is also important to understand that the characteristics of quasi-equity financing would involve either being an unsecured loan or it can also be a flexible loan repayment option. The common examples of this form of debt are mezzanine debt and junior debt as these two debts are both unsecured and flexible in terms of the repayment schedule of the loan. It is through this sort of financial loan that we can understand the meaning of quasi-equity.
Quasi-equity is regarded as a form of debt that some of its characteristics are quite similar to that of the equity. This type of debt includes flexible payment options that are unsecured or have no collateral. This debt is only used to calculate the ratio rather than the total debt.
This is the kind of bond that benefits the government fund infrastructure and also the service costs. Social impact bond plays a crucial role during cuts in the public budgets and hectic municipal markets. It was launched in the UK in the year 2010. Besides, this bond was only sold to the private investors who could enjoy the returns only if the public project succeeded. For instance, if a program like rehabilitation reduces the rate of involvement among newly released convicts, it is then when the investors can expect returns. Investors receive returns at this point because they get an occasion to take planned risks for profits. Also, in such cases, the government pays the investors a fixed return for any form of demonstrable results. The bond can potentially change the discussions about the expansion of social services when they shift the chances of failure of the program to the investors from the taxpayers.
1. How does Social Impact Bond Affect the Financing of a Social Enterprise?
Answer: The social impact bond greatly helps in the financing of a social enterprise through a series of developments. The expansion of these developments helps social enterprises to have numerous options that are not available to conventional businesses. These bonds expand the range of asset classes that allow investors to have more options to diversify their investment portfolios. For instance, they get the opportunity of earning returns through a new set of products and customer groups in various countries.
2. What is Meant by Quasi Equity Debt Security?
Answer: A company does not get equity capital if the structure of the enterprise is non-profit. In such scenarios, the meaning of quasi-equity is well understood by the enterprise; the reason being these debts come very usefully in such situations provided they depend on the financial performance of the enterprise.
3. What is a Quasi Loan?
Answer: A Quasi Equity Loan is when the company makes a payment which the director is bound to do personally only on the terms that the director would repay the money to the company. It is always better financially to have such transactions on annual accounts records.