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Project Funding

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Project Funding in India

When starting a new project or introducing a new aspect to the business, functioning doesn’t meet the planned finance schedule all the time. Some financial leverage is needed to make the project come to reality. Thus, project funding comes in to picture.

Project Funding addresses the monetary requirements of the exclusive project. It means a loan obtained for fulfilling the finances that a new project brings along with it. Here the collateral security is the project itself. So, it means the loan can be repaid after the project completes or begins generating revenue.

Thus, it is the funding of infrastructural or industrial projects on a long-term basis. The project commences the cash flow once it has been completed. It is a common type of financing. Thus, used widely in the Indian market industry. Lending institutions, banks, and NBFCs provide this type of loan.

Advantages

  • Funded based on the future cash flow
  • Funding can be arranged for Capex and Opex
  • The moratorium for the repayment period
  • Not 100% collateral required
  • Good Interest rate
  • Longer repayment tenure. So no immediate and huge repayment burden.

Project Funding Types

Project funding is of two types in terms of the collateral required. Primary and secondary. The primary form of collateral is the project itself. And the secondary collateral is the value of the loan and this collateral is apart from the project. The reason for this basically, is the profile of the company. How old is it? whether it is a newly established firm? or a firm that has been in business for long years? The risk factor involves the perspective of banks and lending institutions.

Features of Project Funding

In the project funding, the capital can raise for any type of project. This is just one of the vital features of project funding. It involves investors’ funds. Also, the financed loans that to be repaid once the cash flow marks its way.

In project financing, the borrower is not liable to obligations in the cases of default. It is a type of mortgage that banks take while financing the project when discrepancies like the borrower being unable to make the partial or complete repayment of the loan. Banks, financial institutions, and lending firms use that mortgage to recover the loan amount. Their recovery will be identical to the mortgage value, and cannot exceed it.

As this loan is taken for long term, big scaled projects, there is a participation of multiple entities which ensure the process is collectively smooth, and fast.

The SPV (Special Purpose Vehicle) keeps an eye on the proceedings of the project. It also maintains a line of sight at the assets. So, after the completion of the project, asset allocation is processed with regards to the Special Purpose Vehicle which monitors all of that.

The cash flow which the project generates after completion is therefore used for the repayment of the loan. A credit rating of the sponsor has minimal impact on project funding

 

Benefits

There are many benefits of project funding due to its specifications. So, here are some of the major benefits of project financing:

1. Risk-sharing

There is an opportunity for risk-sharing in project financing. It is due to the presence of multiple entities such as lenders or investors. The scope of risk-sharing in project funding is a collective one, this also minimizes the risk at the same time.

2. Extending the debt capacity

The debt would not fall on one lending institution or investment firm. Thus the capacity of containing debt is also enhanced due to the presence of multiple entities.

  • Financing projects through general project finance enables the sponsors to retain the confidentiality of vital information. It is regarding the project which is going to be financed. It is keeping up with the competitive market through competitive advantage.
  • Any introduction of new industrial technology, or development and commercialization of a new product/service, these types of projects fill perfectly. It is in the project financing eligibility criteria for the project.
  • Projects based on the improvement of existing products or services are also completely eligible to receive project funding.
  • Projects that ensure sustainable development. That is reduced material consumption, or cost optimization projects. Those having the potential to function in the field of modern technology also fall under the project financing eligibility criteria.
  • The project must be justifiable to the investors and lending institutions. A new and exclusive opening of an aspect that would be commercialized in the form of a completed project. Once the lending facilities get convinced, the project will generate considerable cash flow. They can provide the funds with reliability.
3. Interest Rates

The interest rate depends upon the profile and overall feasibility of the project. The investors and lending institutions decide on an interest rate. So, however, in some cases the project funding interest rate factor is absent. It is all dependent upon the cash flow generated after the completion of the project.

FAQs

Builders majorly avail project finance. There are lending institutions that specifically provide project finance for builders. Also project finance for real estate development. Any company which wants to introduce, complete and monetize the project is eligible or applicable for a project funding loan.

Below are the steps to availing of project funding in India:

  • Identifying the profile and potential of the project

For borrowers who are looking for project financing to finance their project must first identify how the project will turn out? And, How will it be explained to the investors and lenders? So that the picture is clear on all sides so that the procedure can start.

  • Exploring the overall feasibility of the project

All the costs, market taxes, and the overall identification of which industry would be applicable determine the feasibility of the project. So, this is extremely crucial.

  • Exploring the internal factors of the project

This step is vital. Because the study of how much human resources or sources of technology will require would enable the sponsor to commence the procedure. Thus, it increases the overall sustainability of the project.

  • Finding out the project finance sources

Finding out the right sources of investment in the projects is another important aspect. The lending parties must be completely aware of the proceedings of the project. 

  •  Risk management

Identifying potential risks is the ultimate step of project financing. There are variously internal and external risks that surround a project irrespective of the industry. Managing such risks after identifying them makes sure the project proceeds seamlessly.

Learn in detail about How to Get Project Funding in India?

Do you have a project to complete? or does it need to complete? Then you must consider Terkar Capital as your primary lending institution. It is one of the project funding agencies in India. We provide highly specialized assistance throughout the procedure. Over the years Terkar Capital has been participating in project financing. Our executives are trained to guide the clients throughout. Thus, reach out to us at head office or corporate office today to avail project funding without any hassle.

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