Project Financing

Project financing is a techniqueused for large projects.  Project finance is different from traditional forms of business financing because the lender primarily looks to the assets and revenue of the project order to secure and service the loan.  Lenders base their financing decision purely on the cash flow generated from the project, rather than on traditional guarantees.  Project financing loans are secured by liens on the project assets but payment is expected to come from the cash flow the project generates.

This type of financing is very difficult to arrange, anditis sometimes supported by government financing. There are a number of informational links online that can provide more information on this topic including:

http://members.aol.com/projectfin/intro.html 

http://www.opic.gov/topframe.htm

Lenders are concerned about payment defaultwith project financing as with any loan. They will evaluate these issues in particular:

1. The risk that the project will not be completed on time, on budget, or at all; or
2. The risk that the project will not operate at the expected capacity and will fail not generate enough revenue to service the debt,or
3. The project prematurely coming to an end.

Edited by Michael C. Dennis.  Mr. Dennis is the author of "1001 Collection Tools and Tips."