In order to have a continuous growth and expansion of the industries at a rapid rate Project Finance is one of the key focus areas in today’s world. It is a long-term financing of infrastructure and industrial project depending upon non-recourse or limited alternative of financial structure so that the project debt and equity used to finance the project are paid back from the cash flow engendered by the project.
Project finance is the long-term financing of infrastructure and industrial projects based upon the projected cash flows of the project rather than the balance sheets of its sponsors. Project Financing is a secured form of lending, accepting the project’s rights, assets, and interests as collateral. It is useful in more than one way as it can help the Company to expand the manufacturing capacity, rent a workstation, upgrade its technology, handle unexpected expenses, experimentation of a new product or service, create a cash pool, etc.
Features of project financing
Sources for Obtaining Project Finance
Stages of Project Financing
- Identification of the Project Plan: - The first step is to analyze the strategic plan of the project in order to check that whether it is feasible or not and whether the project plan is in line with the goals of the financial services company.
- Recognizing and Minimizing the Risk: - While beginning with project financing risk management should be focused. The lender has a right to check whether the project has enough resources in order to mitigate the future risk.
- Project Feasibility: - Before investing the lender should check whether the project is technically and financially feasible by examining all the associated factors.
It is the most crucial part of project financing which is further classified into following points:
- Arrangement of Finances: - The sponsor has to take care of the finance related to the project as it has certain needs to acquire equity or loan from financial organizations.
- Loan or Equity Negotiation: - At this step the lender and borrower negotiate and take a unanimous decision.
- Documentation and Verification: - The terms are decided through mutual understanding and which are then reduce on paper keeping the policies of project in mind
- Payment: - At last the borrower receives the funds and starts the business operations as agreed between the parties.
- Timely Project Monitoring: - With the commencement of project it is the duty of the project manager to monitor the project at regular intervals.
- b. Project Closure: - It is the second last step which means the project has come to its end.
- Loan Repayment: - It is important to have a track of the cash flows from the operations of the project as the same will be then utilized to repay the loan taken.
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