Project Financing; How to do it right: What is Project Financing?

Until recently, project financing has always involved only the big players in the game. Also, the sound of it alone depicts large sums of money going into a project. The prerogative to any sort of funding of a project as ‘project financing’ has never really been. The term even though popular and used regularly in the finance and business worlds has not been well defined for a very long time; up till now. Well, project financing is taking a new approach and smaller business are getting involved.

However, a school of thought refers to project financing as one, where a project is funded solely from the financial capability of a particular body and the project which is funded will be able to refund all debts using its assets and rights. So in simpler terms, the project will repay debts from its cash flow.

Loans Types in Project Financing

Agreements in project financing are secured legally. Project financing is usually of non-recourse or limited recourse financial structure. One very interesting feature of project financing on a non-recourse loan is that in any case that the project cannot pay all of its debt, nothing beyond the project assets can be seized.

On the other hand, a debtor with a recourse loan will be held after the worth of seized property does not make up for accrued debt. You will be let in on how a project can be financed, and how to go about them.

Sources of Project Financing

Equity

 In equity financing fund is raised by selling a percentage of its ownership to an investor. The investor is taking a risk by investing in the project and is hereby compensated by having part ownership of the entire project while funding it.

Financing can be sourced from the government, and not just them but also private investors and project sponsors. These guys set their sights on ‘big cheese’ at the end of the day. They want more than just the cost of the project and the interests. Thing is they also want to be paid for the risk in investing in the project. Equity providers have less claim to the income from a project and its assets. 

Debt

Banks are into the service of offering commercial loans for project owners. Although you can get them from private investors too. The terms of a loan can be more friendly for the project owner if he has a good relationship be it a bank or private investor.

For any form of project financing to be valid, certain features, conditions and agreements have to be met by the two parties; the project owner and the lender or the one who is financing the project. Common features of project financing are; risk managements and allocations, project finance documents, costs of financing and special purpose entities.

Quality advice is necessary for acquiring any form of financial assistance while embarking on a project. You’ll need a professional who will give advice that will develop into you getting maximum value at the end of the day and that’s why we are here. You should be able to go about project financing the right way with this little information