Project Finance

Project Finance

Project Finance is used for the process of financing for a big project. Such type of financing analyses and studies the whole circle of that exact project. It is very important to know what benefits will be left after financing. Therefore, the cost-benefit analysis determines if benefits are larger than costs and if the project is useful and economic at all. Such analysis is mostly used for long-term projects.
The first step of the analysis is to determine the financial structure, a mixture of debt and equity, that will be used to finance the project.
Then, identifying and valuing the economic benefits of the project will determine if the benefits outweigh the costs.
Project financing is mostly used in industrial and infrastructure projects, as it needs long- term financing. Also, too big attention is paid to the cash-flow of the project.
Also, finances could most commonly be loans secured by the project assets and paid entirely from the project cash flow.
Project lenders are able to take control of a project if the project company has difficulties with the loan terms.

Project Finance

Who Are The Sponsors of Project Finance?

Four types of sponsors are often involved in such transactions:
· Industrial sponsors – They see the initiative or in some way are linked to the core business
· Public sponsors – Central or local government, municipalities and municipalized companies whose aims center on social welfare
· Contractor/sponsors – Who develop, build, or run plants and are interested in participating by providing equity and/or debt
· Financial sponsors/investors – They play as part of a project finance initiative with a motive to invest capital in high-profit deals. They have high propensity of risk and seek a substantial return on investments

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