Project finance as the name itself describes financing of the money/amount required for a project. Here, the projects are the big industrial projects.
Our company will give highlights on how a project gets financed and what are other requirements for Project financing.
The need of project financing
The money required for the project such as in the making of roads, installation of thermal plants, in oil & gas sectors, in mining sectors and any such sectors where a large amount of money is required. There are projects that cater for public convenience. A good example of such kind is money required for public convenience and that is urban mass rapid transit system. The amount of money is high and therefore the funding of the projects is necessary.
Who all are involved in project finance?
Owners of the project: They are the developers who come in collaboration for the development and they form a company and that could be a private limited company. A project company is needed as the medium of the project development. In India a private limited is preferred as a medium of the project development.
The lenders: They provide financial assistance and funding for the project. These lenders could be the banks and other companies that can provide financial assistance and funding.
The borrowers: They need money for the projects. These could be the big sectors as well as the government also.
Financial advisors: They will advise on financial matters related to the project.
Project managers: They have to keep an eye on the requirements of the project and the duration that the project will take to complete.
Supplementary Investors: Besides those who form a company the investors are also required in addition to the project development.
Constructors/Builders: They are appointed by the owners of the project and their role is to construct or build within the duration of the project.
Project financing: An investment for lenders
Those who give money for the projects can see their money as an investment because the returns would be higher and the borrower has to return the principal amount with the interest.The period of financing the project is long and the people/institutions who invest in such projects can see their returns higher.
Project financing is a solution that has been used by corporates for the completion of the project as well as raising funds for the big projects. Project financing gives a replacement to the old methods of financing.