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 into the picture. Project Financing 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 is the project itself. So, it means the loan can be repaid after the project is completed or begins generating revenue.
Thus, unlike unsecured loans, 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.
Facilitate funding, including equity and debt
Good Rate of Interest
A Project serves as the collateral itself
It involves multiple participants
Repayment relies on the project's future cash flow
Project financing 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 many years? The risk factor involves the perspective of banks and lending institutions.
Project funding is the process of raising capital for a project. It can involve investors’ funds, as well as loans that must be repaid once the project starts generating cash flow. Hence, This is one of the key aspects of project funding.
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. Thus, their recovery will be identical to the mortgage value, and cannot exceed it.
As this loan is taken for long-term, large-scale projects, there is the participation of multiple entities which ensures 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 that 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 financing due to its specifications. So, here are some of the major benefits of project financing:
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.
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.
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 financing interest rate factor is absent. It is all dependent upon the cash flow generated after the completion of the project.
Understand Project Funding from FAQs.
Project Financing focuses on procuring the funds required for a specific project. It is a unique way to raise capital for large-scale projects through a combination of debt and equity instruments. Unlike traditional loans, project financing focuses on the project’s future cash flow for repayment, not the borrower’s credit history. This makes it suitable for ventures with significant funding needs.
Hence, at Terkar Capital, we facilitate project financing in India to raise the capital required to complete your project. Apply at ease!
We cordially track the deadlines and make our quality tangible, while executing finance projects well ahead of time.
We comply with the highest professional confidentiality standards. All client information is discussed in strict confidentiality.
We find you the right lenders with similar terms and the lowest Machinery Loan interest rate.
We create a stable ownership structure for financiers by establishing a secure transaction process.
We are building our reputation through reliability, integrity, and honesty. We connect to our clients on personal grounds that include transparency and liability.
Castle Eleganza, 103, Bhonde Colony, Dr.Ketkar Road, Erandwane, Pune – 411004 [MH-India]
The Capital, Level 7, B-Wing, Plot C – 70, G Block, Bandra Kurla Complex, Bandra (East), Mumbai – 400051 [MH-India]
Nashik | Nagpur | Chhatrapati Sambhaji Nagar
Delhi | Bengaluru | Chennai | Hyderabad | Kolkata | Ahmedabad | Surat
