Warrant
Private Equity glossary · Private Equity Fundamentals
Definition
Long-dated option to purchase equity, typically attached to debt instruments.
Warrant in plain English
A warrant is a coupon that gives its holder the right — but not the obligation — to buy a company's stock at a set price, usually good for years into the future. Lenders often get warrants tacked onto a loan as a sweetener: if they lend money and the company later does great, the warrant lets them buy in cheap and share in that upside, on top of just getting their interest. Imagine a friend lends you money to start a lemonade stand and, as a bonus, gets a slip letting them buy a slice of the stand later at today's low price — if the stand booms, that slip becomes valuable. That's a warrant.
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