Project finance has evolved from being a financing technique used to fund large-scale natural resource projects (i.e. pipelines, refineries, hydro-electric power plants, etc.) to become a commonly used approach to financing a broad range of long-term, large-scale projects around the globe.
Given its very complex nature, project financing requires in-depth understanding of the financial industry, of why certain projects have failed while others have succeeded, of the required contractual arrangements to support the financing, of how to leverage cash flow projections to measure expected return rates, not to mention all of the legal issues, and much more.
How is project financing different from other financing methods?
In most cases, lenders look to the future cash flow of the project as primary source of repayment. What serves as collateral security are the project’s assets, rights and interests. Project financing is also referred to as non- or limited recourse finance because lenders have no or limited recourse to the sponsors or shareholders of the project company for repayment of the loan. The project cannot even begin to provide for repayment until it is fully operational, and then depends on continued sound operation – and this is why its analysis is so critical. Every risk associated with the project is carefully studied before funding can be sourced.
As long as the business plan backing your vision is well designed and your project offers attractive revenue flow projections, obtaining funding is mostly a matter of knowing who to go after and how to present the opportunity to them. When reviewing project proposals, we sometimes find potential revenue models that the project owners themselves have not yet considered – and this is the added value we offer to our clients.
The very first steps in project financing
When you send us your project documentation for review, these are the first questions we will immediately seek answers to:
- Is the project doable? Is there a feasibility study showing the financial viability of the project?
Are the project owners qualified to make it successful and ultimately do what they claim they can do? (What previous experience demonstrates it?)
Are the assumptions used in the projections, particularly the basis for revenue projections, realistic? How do they compare with industry standards?
- Have all aspects (i.e. legal, regulatory, environmental) and risks associated with the project been properly addressed?
In the case of a real estate development project, does it meet regulatory requirements like zoning and environmental regulations?
It is important to keep in mind that even the tiniest missing detail can
create road blocks with capital investors. Because the risks assumed by
lenders are typically greater in a non-recourse project financing than in a
more traditional financing, the cost of capital is likely to be greater than
with a traditional financing. You should be prepared to maintain your
project active for no less than 10 months. The average time for approval
and funding is about six months, depending largely on the complexity of your
project and your responsiveness to our requests.
So, whether you have a commercial project, a joint venture, or a start-up business in need for investment capital, let us review your strategic plan and tell you how we can secure the financing structure you will need to realize your vision. We can assist with projects in a broad range of industries including, but not limited to:
- Commercial Real Estate (all types)
- Energy (acquisition & development)
- Land (improved/unimproved)
After you have contacted us and also sent information* about your project, we will schedule a call to learn more about your project, answer any questions you may have, and discuss next steps.
If you have any questions, please contact us or send us an email to firstname.lastname@example.org.
* All information you sent us via our web site is treated as confidential. Please review our legal disclaimer for complete details.