Simple English definitions for legal terms
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Equity kicker: When someone lends money for a project, they might ask to become part owner of the project too. This is called equity participation or an equity kicker.
Equity kicker is a term used in finance that refers to a type of equity participation. It is a condition where a lender is given a share in the ownership of a project as a requirement for granting a loan. This means that the lender will receive a portion of the profits or gains from the project in addition to the interest on the loan.
Let's say a real estate developer wants to build a new apartment complex but needs a loan to finance the project. The lender may require an equity kicker as a condition for granting the loan. This means that the lender will receive a percentage of the ownership in the apartment complex and will share in the profits from the project.
For example, if the lender requires a 10% equity kicker, they will receive 10% ownership in the apartment complex and will share in 10% of the profits. If the project is successful and generates a profit of $1 million, the lender will receive $100,000 in addition to the interest on the loan.
Another example is a startup company that needs funding to grow its business. The investor may require an equity kicker as a condition for investing in the company. This means that the investor will receive a share in the ownership of the company and will share in the profits or gains from the company's success.
Overall, an equity kicker is a way for lenders or investors to mitigate their risk and increase their potential returns by sharing in the ownership and profits of a project or company.