Top 5 Sources of Project Financing

By | April 27, 2018

Whether it is a short-term public programme or a long-term infrastructure project, financing is a critical requirement of large company projects. In fact, there are such huge nationwide projects that cannot even run without financing, as cash flow needs to be maintained and there is wide asset acquisition and management involved. Considering the critical project financing needs, let us share with you the top five sources to finance a project.

1. Overdraft loan: As against regular loans from a lending or banking institution, an overdraft loan involves less interest payments, as interest has to be paid on the extra amount withdrawn from an account beyond zero balance. If you have overdraft protection on your account, you can withdraw money flexibly even when you do not have enough funds in it. This funding source is quite beneficial, especially in cases where projects are short term and repayments can be made within a year or so.

2. Equity: There are all types of investors and sponsors who would be ready to provide long-term capital in lieu of a company’s shares or part ownership. Based on overall profits, they receive capital gains at times, as well as dividends. As it is a share in net profits of the company that the investors receive, they can sometimes be at loss when the company does not make profits from a project. Thus, equity may be risk-taking for investors but beneficial for project operating firms.

3. Commercial loan: If project owners can project an impactful cash flow to support financial debt repayment, then a commercial loan from a banking or financial institution can be a powerful source of project financing. However, most lending institutions perform intense scrutiny before approving commercial loans.

4. Supplier credit: Many times, project firms can receive long-term loans from suppliers that supply them with equipment for project implementation. This helps in covering the company’s expenditure on project equipment. Such supplier credit is very helpful in cases where projects have an intensive need of capital equipment.

5. Share capital: Usually when a firm is listed on the stock market, it comes out with new issues of company shares. The raised share capital is quite significant for project launch. However, it depends on how a project grows and many other factors that the share value changes.

Thus, you may not only depend on loans from financial institutions in order to support your project, but you may also try other impactful sources like overdraft, equity, share capital, and credit from your equipment suppliers.

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