If you are planning to start an industrial, infrastructure, or public services project and need funds for the same, Project Financing might be the answer that you are looking for.
Project Financing is a long-term, zero or limited recourse financing solution that is available to a borrower against the rights, assets, and interests related to the concerned project.
The repayment of this loan can be done using the cash flow generated once the project is completed instead of the balance sheets of the sponsors. In case the borrower fails to comply with the terms of the loan, the lender is entitled to take control of the project. Additionally, financial companies can earn better margins if a company avails this scheme while partially shifting the associated project risks. Therefore, this type of loan scheme is highly favoured by sponsors, companies, and lenders alike.
In order to bridge the gap between sponsors and lenders, an intermediary is formed namely Special Purpose Vehicle (SPV). The main role of the SPV is to supervise the fund procurement and management to ensure that the project assets do not succumb to the after-effects of project failure. Before a lender decides to finance a project, it is also important that all the risks that might affect the project are identified and allocated to avoid any future complication.
What Is Special Purpose Vehicle and Why Is It Necessary?
During Project Financing, a Special Purpose Vehicle (SPV) is appointed to ensure that the project financials are managed properly to avoid non-performance of assets due to project failure. Since this entity is established especially for the project, the only asset it has is the project. The appointment of SPV guarantees the lenders of the sponsors’ commitment by ensuring that the project is financially stable.
Documents required for Project Loans
- Company profile
- KYC of the borrower & entity
- Last 2 years audited financial statements
- Project report
- Fund utilization report
- Payback plan and Income sources
- Details of assets available for collateral
- Details of the existing loan if any
- Project-related commercial & legal agreements
- Application form with photograph duly signed