Project finance is the funding of long-term infrastructure, industrial projects and public services based upon a non-recourse or limited recourse financial structure, in which project debt and equity used to finance the project are paid back from the cash flow generated by the project. Project financing is a loan structure that relies primarily on the project's cash flow for repayment, with the project's assets, rights and interests held as collateral.
Project finance is often confused with corporate finance, but the two are structurally different. Unlike corporate finance, where a company can directly raise funds from equity and debt, in project finance, the company which invests equity (usually known as sponsor), forms a Special Purpose Vehicle (SPV) which manages the funds procurement and management of the specific project.
A Special Purpose Vehicle is a legal entity which is formed for a specific purpose such as a project in this case. During the execution, the project’s funding requirements will be solely managed by the SPV. The purpose is to insulate the holding company from any riskiness and eventualities arising in the project. Moreover, when the project funds are duly protected and managed by the SPV, even external investors gain more confidence in the company’s operations.
Several banks and financial institutions have a Project Financing arm, which analyses large infrastructure projects like roads, highways, ports, oil and gas projects etc. to evaluate if these are good debt investments. It then arranges debt funding for them. Apart from this, most infrastructure players have their own in-house Project Finance teams as well, which manage the end-to-end financial implementation of their large projects.
Available to any Business entity provided the financing is sought for sectors listed at the bank.
Greenfield projects can be considered only from established players in that business
The company or business has to submit continuity document of at least 3 years.
The company or business must show profit in the last financial year.
Only established players can be considered for those projects not listed at the bank.
Dealer inventory funding loans can be considered for established dealers of reputed automobile OEMs.
Following are the documents you would need to submit for all applicants / co-applicants along with the completed and signed application form for loan approval:
ID proof: Copy of passport / pan card / voter id card / driving license/ ration card / adhaar card.
Address proof: Copy of , passport/utility bill/voter id card / driving license/ ration card / adhaar card.
Company profile including existing product range.
Promoter profile including KYC details.
Latest list of director & shareholding pattern on letter head attested by CA.
Latest sale tax/service tax/ vat/cst/certificate of registration.
Copy of MOA/AOA/partnership deed (as applicable).
Last 6 month bank statement of all running bank accounts of company.
Last 6 month bank statement of all running bank accounts of director / partner / proprietor.
Latest statement of account of all running loans.
Audited balance sheets of the last 3 years.
Copy of detailed project report.
Purpose of the loan.
What are the general parameters for funding?
The lender will consider any project in any stable country. The main criteria for underwriting approval is the exit strategy, the anticipated future value of the project and the experience of the principals.
What can be accepted as security for project finance?
Banks accept a wide range of securities which includes land & real estate property; plant & machinery, equipment; Fixed Deposits, Deposit Certificates, KVP, NSC, securities issued by Central and State Governments, gold and other cash equivalents; life insurance policies.
How do I repay my Project loan?
You have the flexibility of opting for Equated Instalment, Bullet Repayment or Ballooning Repayment (depending on the requirements of your business). PDCs, ECS mandate or Electronic Transfers are all accepted means of payment.
How much project financing can I avail of? How is the quantum decided?
The project loan quantum is decided based on your requirement, credit assessment and repayment capacity.