Features of project financing
Posted: Thu Jan 30, 2025 8:14 am
Project finance structures vary depending on the specifics of each specific transaction and economic sector. There is no single standard approach, as each transaction is unique. However, there are several principles that are common to all PFs.
Project financing is usually used to implement separate projects that are legally and economically independent. PF is carried out through specially created companies (SPV).
It is typically used to launch new projects rather than to finance existing businesses, except in cases of franchise sales or debt refinancing.
Project finance is namibia email list characterized by a high level of debt compared to equity, which is called leverage or the ratio between the two. In such financing, 70 to 95% of the project's fixed asset costs can be covered by loans.
Project company investors typically provide no guarantees (non-recourse financing) or only partial guarantees (limited recourse financing), which limits their borrowing liability.
Lenders in project finance look at the future cash flows from the initiative that will be used to pay off debt and interest, rather than at the growth in the value of the development's assets or the improvement in its financial performance.
Project agreements become the main guarantee for lenders. In case of non-payment of debts, the value of the initiative company's tangible assets will probably be lower than the amount of debt when they are sold.
Lenders constantly monitor the work of the project organization to ensure compliance with the terms of the agreements and the preservation of their value, especially if the object does not meet the existing requirements.
The duration of the project depends on the duration of agreements and licenses, as well as the availability of natural resources.
Loans provided to the PF must be fully repaid by the completion of the project.
Project finance differs from corporate loans:
Credit funds in the Pension Fund do not depend on the collateral of assets on the organization’s balance sheet or the analysis of past cash flows and profits.
Unlike corporate loans, which assume a long-term commitment to the organization and the possibility of refinancing debts, project financing is associated with a limited lifespan of the initiative, and the loans must be fully repaid upon its completion.
Corporate loans provide access to funds from the borrower's overall operations, rather than to finance a specific project. This means that if a particular project fails, corporate lenders can rely on the organization's other resources to pay off their debts.
In the case of corporate loans, the company's buildings and equipment can be used as collateral. The lack of such methods in project financing is a minus for the lender.
Corporate loans typically allow a company's management to run the business as they see fit, as long as it does not cause significant financial problems.
Project financing is usually used to implement separate projects that are legally and economically independent. PF is carried out through specially created companies (SPV).
It is typically used to launch new projects rather than to finance existing businesses, except in cases of franchise sales or debt refinancing.
Project finance is namibia email list characterized by a high level of debt compared to equity, which is called leverage or the ratio between the two. In such financing, 70 to 95% of the project's fixed asset costs can be covered by loans.
Project company investors typically provide no guarantees (non-recourse financing) or only partial guarantees (limited recourse financing), which limits their borrowing liability.
Lenders in project finance look at the future cash flows from the initiative that will be used to pay off debt and interest, rather than at the growth in the value of the development's assets or the improvement in its financial performance.
Project agreements become the main guarantee for lenders. In case of non-payment of debts, the value of the initiative company's tangible assets will probably be lower than the amount of debt when they are sold.
Lenders constantly monitor the work of the project organization to ensure compliance with the terms of the agreements and the preservation of their value, especially if the object does not meet the existing requirements.
The duration of the project depends on the duration of agreements and licenses, as well as the availability of natural resources.
Loans provided to the PF must be fully repaid by the completion of the project.
Project finance differs from corporate loans:
Credit funds in the Pension Fund do not depend on the collateral of assets on the organization’s balance sheet or the analysis of past cash flows and profits.
Unlike corporate loans, which assume a long-term commitment to the organization and the possibility of refinancing debts, project financing is associated with a limited lifespan of the initiative, and the loans must be fully repaid upon its completion.
Corporate loans provide access to funds from the borrower's overall operations, rather than to finance a specific project. This means that if a particular project fails, corporate lenders can rely on the organization's other resources to pay off their debts.
In the case of corporate loans, the company's buildings and equipment can be used as collateral. The lack of such methods in project financing is a minus for the lender.
Corporate loans typically allow a company's management to run the business as they see fit, as long as it does not cause significant financial problems.