Question 6.RQ.1: What are share warrants and what are the benefits to a busin...

Financial Management for Decision Makers

What are share warrants and what are the benefits to a business of issuing share warrants?

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Share warrants may be particularly useful for young, expanding businesses wishing to attract new investors. They can help provide a ‘sweetener’ for the issue of loan notes. Attaching warrants may make it possible to agree a lower rate of interest and/or less restrictive loan covenants. If the business is successful, the warrants will provide a further source of finance. Investors will exercise their option to acquire shares if the market price of the shares exceeds the exercise price of the warrant. However, this will have the effect of diluting the control of existing shareholders.

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