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 kind of a financial leverage is required for making the project come to reality. Project finance addresses exactly the monetary requirements of the exclusive project. Project finance means a loan obtained for fulfilling the finances which a new project brings along with it. Here the collateral security is the project itself, which means after the project is completed and begins generating revenue, the loan can be repaid. 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, which is used widely in the Indian market industry. Lending institutions, banks, NBFCs provide this type of loan.
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 which has been in business for multiple years. The risk factor is involved here in the perspective of banks and lending institutions.
In the project funding, the capital can be raised for any type of project. This was just one of the vital features of project funding. It involves investor’s funds and the financed loans which are 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 and also maintains a line of sight at the assets. 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
There are many benefits of project funding due to its specificality, here are some of the major benefits of project financing:
There is an opportunity of risk-sharing in project financing 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.
The debt would not fall on one lending institution or investment firm, the capacity of containing debt is also enhanced due to the presence of multiple entities.
Project funding interest rate depends upon the profile and overall feasibility of the project. The investors and lending institutions decide an interest rate, however, in some cases the project funding interest rate factor is absent and it is all dependent upon the cash flow generated after the completion of the project.
Below is the steps to availing project funding :
For borrowers who are looking for project financing to finance their project must first identify how the project will turn out. And, How it will be explained to the investors and lenders so that the picture is clear on all sides so that the procedure can start.
All the costs and market taxes and the overall identification of which industry this would be applicable determines the feasibility of the project, which is extremely crucial.
This step is vital because the study of how much human resources or sources of technology will be required would enable the sponsor to commence the procedure and increase the overall sustainability of the project.
Finding out the right sources of investment in the projects is another important aspect of obtaining project funding. The lending parties must be completely aware of the proceedings of the project.
Identifying potential risks is the ultimate step of project financing and there are various internal and external risks that surround a project irrespective of the industry. Managing such risks after identifying them makes sure the project proceeds seamlessly.
Project finance is majorly availed by builders. There are lending institutions which specifically provide project finance for builders and project finance for real estate development. Any company which wants to introduce, complete and monetize the project is eligible or applicable for project funding loan.
If you have a project to be completed and it needs to be completed, then you must consider Terkar Capital as your primary lending institution. It is one of the project funding agencies in India which provide highly specialized assistance throughout the procedure till the loan is finally provided. Over the years Terkar Capital has been participating in project finance and has trained executives to guide the clients to the complete extent.
If you have any questions, please do not hesitate to ask us. Please also call us or email us before visiting to make sure that you will be served with our best services.
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