discover those who succeed
Pratical Guide for SME-VSE Entrepreneurs in Africa

Quasi-capital: between capital and loan

  • The word quasi-capital means a series of financing methods the characteristics of which are between long-term credit and participation in the capital, which won it the colourful nickname "mezzanine financing".
  • They are also called "junior debts":
    • the mezzanine financing keeps of the loan the limited term inscribed in the contract and the at least partly guaranteed yield;
    • of the capital, they adopt the uncertainty of repayment ; these loans are indeed "subordinated" which means that in case of bankruptcy, they will be repaid only after discharge of the other debts of the company.
  • The subordination of the debt increases the risk incurred by the financing establishment that will demand a higher yield than within the framework of a traditional loan. The cost for the enterprise is hence more important, but is compensated by:
    • the greater credibility in the banks, reassured by the presence of a recognised external investor;
    • the capacity to borrow more, as upon the analysis of the indebtedness, quasi-capital is considered as capital and not as a loan.

Subordinated loans


Medium- or long-term loan granted to the enterprise in order to allow it to perform a specific investment or to finance its expansion. The repayment takes place gradually and in most cases, the terms are fixed at the time of the signature of the contract.
In case of bankruptcy the subordinated loans will be reimbursed only after the senior loans and before the capital.


As they are repaid after the other debts, the subordinated loans are considered differently by the credit institutions and preserve so the borrowing capacities of the enterprise. However it is not capital, which spares the owners of the enterprise the dilution of their power of decision.
The presence among the creditors of the enterprise of a financial institution determined to accept a higher risk is a positive signal for the other moneylenders.
The absence of obligation to provide guarantees reduces the charge on the enterprise and on its management.


Acquisition of real property, capital goods, material, intangible assets (patent, market study), shares, etc.
Development of a new activity or new market.


EUR, USD, or local currency.


3 to 15 years as a maximum, depending on the risk profile of the country and the financial capacity of the enterprise.


The interest asked on a subordinated loan will be higher than in the case of a long-term loan, as the formula is more risky for the moneylender.

Conditions of grant

The financing institutions, whether public or private, ask the borrower to meet the conditions as to:

  • viability of the project: to get financing, the investment project should be sufficiently profitable. The subordinated character of the debt increases the risk for the moneylender and the various elements of the file of the enterprise will be assessed according to criteria much more severe than for a long-term loan;
  • limits of the investor's implication: the intervention is limited to a percentage of the capital (generally less than or equal to the share of capital held by the founders) and to a maximum amount ;
  • quasi-capital is generally part of a global financing offer of which it is only a part: other financing modes and other institutions are involved in the project ; the ethical character of the project: the international organisations pay special attention to the compliance of the work conditions, prohibition of child labour, environmental impact and positive impact on the local community;
  • sectors of activity: some banks, MFI's and international organisations concentrate their action on a limited number of economic sectors (more information on the Internet site of the various institutions or with their local representation).

Conditions of repayment

The terms of repayment are defined at the time of signature of the contract. They are adapted to the contemplated investment project.

Other mezzanine financing


The variety of the forms of quasi-capital and their adaptation to the situation of the enterprise asking for financing makes it difficult to characterise them.
A lot of them work in the same way as the subordinated loans.
The repayment terms are very flexible and take into account the nature of the contemplated investment. They payments are spread on the basis of the borrower's financial plan, which allows to adapt the evolution of the burden of the debt to that of the income generated by the financed project.


Mezzanine financing foresees generally the full or partial convertibility of the loan in capital, at the moneylender's discretion, but according to terms fixed at the signature of the contract.


The higher risk for the investor makes him more demanding in terms of yield. This will not necessarily result in an increase of the requested interest rate, because the possibilities of conversion in capital and the capital gain realised upon resale of the participation are taken into account.

Development Finance Institutions

  • For large-sized projects, the financing in quasi-capital are generally granted within "mixed" financing solutions comprising a more or less important share of capital. The same establishments offer both types of financing.
  • Smaller projects are generally financed only by venture capital.