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Project Financing

Project Financing

Every project needs financing to implement and run it successfully. Project finance is nothing but sourcing funds to a long-term infrastructure project or any other project, and using the cash flow generated from the project to pay back the financing procured. A special purpose vehicle (SPV) project company with no previous business or record is necessary for project financing. The company’s sole activity is carrying out the project by subcontracting most aspects through construction contract and operations contract. Because there is no revenue stream during the construction phase of new-build projects, debt service is possible during the operations phase only.

For this reason, parties take significant risks during the construction phase. The sole revenue stream is most likely under an off-take or power purchase agreement. Because there is limited or no recourse to the project’s sponsors, company shareholders are typically liable up to the extent of their shareholdings. The project remains off-balance-sheet for the sponsors and for the government.

Before granting a loan to a company there are certain things that the banks check upon which credit rating of the company in the market, view of stakeholders about the company also the financial stability of the company.

 The benefit of the project financing that when sufficient capital is not available then project financing helps in the facilitation of a project with ease.

A project financier will do the following things:
  • Advising the client on the optimum loan facility to be availed, by helping them prepare the financial models for the project. This involves forecasting revenues, studying the project requirements, considering the inherent industry risks involved, and giving financial advisory services.
  • Studying the creditworthiness of the loan seeking entity and determining the exact requirement of the project.
  • Assistance in facilitating loans so that the entire process is accelerated.
  • Assistance in compiling of necessary documents that for the loan process.
They’ve great demand in the field of banking and companies who seek financial advisory for projects. Needless to say that the knowledge of financial modelling and spreadsheets is very important in this area for cash flow management. Some of the other career options in Project Finance field are Relationship Management, Project Advisory/Consulting, and Debt Syndication.

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