Overview of Project Finance
The term project finance is an important term in the context of the present day corporate world. Project finance is normally used in order to mean the money that is invested in industrial or infrastructural projects, which would benefit them for longer periods of time.
Description of Project Finance
In case of project finance the companies normally use the debt and the equity of the project in order to provide money for the project. The debt is normally paid back by using the cash flow that is created when the particular project starts its operation.
The assets of the company or the assets that are possessed by the sponsors of the projects are not used in order to repay the debts that are taken by companies.
Acquiring Project Finance
The various assets of a project are used in order to acquire project finance. The most important in this case are the business agreements that produce revenue. The lenders who provide money for these projects normally receive a lien on the assets of the project.
The lenders are also entitled to take control of the project if the particular company in charge of the project cannot cope with the terms and conditions of the loan.
Special Purpose Entity
The companies that take loans for the purpose of financing their projects have to create a special purpose entity in order to save other properties of the sponsors of the project. The main idea is to save them in case the project does not perform successfully.
Under this system the only asset that is attached to the special purpose entity is the project itself. However the sponsors of the project need to invest properly so that the financial status of the project is stable.
Areas of Using Project Finance
Project finance is used in a wide variety of industries. However, following are the principal areas where the concept is used:
Important Areas of Project Finance
There are a lot of areas that are important in the context of project finance. However, the two most important areas are allocation of financing responsibilities and finding out possibilities of risks occurring in course of the project.
Last Updated on : 27th June 2013