Project Finance FAQ
Frequently Asked Questions And Answers About Major Project Funding
Project Finance FAQ Overview
Project Finance FAQ is an extensive library featuring hundreds of frequently asked project finance questions and answers. Global Trade Funding furnished this highly detailed Project Finance FAQ to help our clients better understand the most complex financing structure in the world.
Our objective is to provide a platform of answers that assist sponsors with the project financing application process that also offers transparency. These project finance faq are extensive, thorough and exceedingly useful to both project sponsors and project participants when used thoroughly, so resist the urge to skim the highlights. Becoming familiar with the answers to these project finance questions increases the likelihood that your project financing will be approved and funded and may also reduce any potential delays in the financing process.
Sponsors may also find the industry resources page of the International Project Finance Association helpful.
Project finance is the lending structure that has financed a great many of the massive infrastructure and sovereign projects in emerging market countries throughout the world.
Project Finance FAQ Frequently Asked Questions
- Project Documentation
- Project Eligibility
- Project Finance
- Project Finance Costs
- Project Finance Procedures
We perform documented due diligence on project stakeholders including directors, shareholders and senior managers. We make wide-ranging inquiries concerning the stakeholders who are required to answer and sign a questionnaire which we make available to lenders. We usually perform our due diligence service at our own cost and therefore at no charge to you.
Due diligence typically occurs at the same time as the project financing process.
If the lenders do not appoint us as loan supervisors we may join the lending syndicate.
No. Lenders would not regard us as being independent from you if we entered a joint venture with you.
No. Lenders would not regard us as being independent from you if we took a stake in your project.
No. Lenders would not regard us as being independent from you if we received finance provision fees from you before finance is placed with your project.
We receive our finance provision fee success fee from you only when finance is actually placed with your project.
To have the necessary confidence to invest, lenders must have complete confidence that we are presenting them with a fair, accurate, objective and independent evaluation of your project.
Neither. We maintain very strict independence from you and from the lenders during the project financing process.
The time required to finance a project varies greatly from project to project and is primarily determined by the project’s scale, complexity, nature, marketability, the prevailing economic conditions and the readiness of the project to go to market.
The likelihood of a project being financed depends on project viability, projected profitability, the quality of the project documentation, prevailing economic conditions and other factors.
No. Every project has an element of risk.
No. You are not usually required to supply financial guarantees to the lenders.
Yes. When we approve a project, the lenders usually require us to provide financial guarantees for the first three years of your project’s operation. If the project fails to meet its financial objectives as defined in the feasibility studies and business plan, the lenders are legally entitled to retain the guarantees we have provided in compensation. It is therefore essential that we have complete confidence in the accuracy of the project documentation.
The lenders require us to independently analyse and where appropriate approve your project documentation.
After the syndicate is formed we typically offer you a number of loan proposals.
The syndicate is formed after your project documentation has been completed, verified and approved by us.
The syndicate is typically composed of a variety of investors including hedge funds, institutional investors, government investors, private investors, investment banks, investor groups, money market funds, mutual funds, pension funds and venture capital firms selected from our private database of professional investors and lenders. We have associates who are retained by national banks and financial institutions as project advisors.
We form a syndicate comprising a number of professional international investors and lenders. From the investors’ viewpoint, the advantage of being a member of a syndicate rather than the sole investor is that it spreads the risk for the project and each investor can see that other investors have independently concluded that the project is viable and profitable.
No. We are not interested in projects which need bridging finance.
No. We are not interested in projects which have already received finance but which need to restructure their finance.
No. We do not finance acquisitions of projects which are already operating.
No. We are not interested in financing the purchase of land when the project does not include developing the land.
No. We do not get involved in projects which are under construction.
No. In the current economic climate we expect all project finance applicants to put equity into their own project.
No. Our lower threshold to consider a project for financing is $5,000,000.
Currently, we are not considering projects in a number of countries including Afghanistan, Iraq, Nigeria and Palestine.
We will consider projects in most countries including those listed on our project finance territories page.
Only very rarely do we consider projects which do not have a construction component.
Political and economic stability of the country in which the project is to be based, likely return on investment, market saturation, geographical location, site accessibility and many other factors.
Our core business is financing and developing hotels, resorts, theme parks and other tourist-based land development projects but we also consider construction projects in a broad range of other industries including residential housing, commercial property, transport, manufacturing, energy, agriculture and mining. To interest us, a project must usually have either a unique selling proposition or a strong combination of supporting factors.
The deal always proceeds. During document preparation, we begin our due diligence procedure and underwrite the project financing.
Yes, we can help. You are right to be concerned. International project lenders are risk averse and will not invest in projects that don’t have sponsors with strong operational and managerial experience. We can provide management personnel with strong industry experience and can incorporate them into the project documents if we are preparing them. This will strengthen investor and lender confidence in the project because their investment will be protected by experienced and proven managers. The provision of project personnel is subject to contract.
Yes, project documents should always include a material disclosure statement affirming that you have not furnished the data for the market feasibility study or the financial feasibility study. Affirmations such as these give potential investors confidence in the financial data used in the core project studies, and in the independence and objectivity of the studies.
For financial feasibility studies to be credible they must be based on data derived from the real-world cash flow performance of comparable existing projects, not unsupported assumptions. Financial feasibility studies based on assumptions instead of comparable real-world data carry no weight with international investors. To qualify for financing, your project must present realistic revenue, expense, profit and cash flow forecasts and must be able to demonstrate an acceptable internal rate of return.
The cost of developing project documentation varies widely depending on the scale, nature, and complexity of the project. It is a significant expense but is necessary to secure financing and likely improves the profitability of the project.
We only accept project financing engagements with high-quality, well-written documentation. International investors and lenders rarely approve projects with poorly written, inaccurate, incomplete or unsupported documentation. It is not possible to raise international project finance with inadequate documentation and therefore we only approve projects supported by international investment standard documentation.
Absolutely not. It is impossible to secure a commitment for Project Financing with inadequate or subpar documentation. Because the likelihood of securing financing is nil we will not accept an engagement to place project financing if it does not have high-quality documents. To proceed further, you must develop high-quality, well-written project documentation or engage Global Trade Funding to develop the project documentation.
It is doubtful. Project documentation must be of sufficient quality to convince the world’s most sophisticated investors to finance your project and we know of no way of doing that without high-quality, well-written project documents.
A common error made by project sponsors who have never developed a significant project before is they attempt to package the project for financing with project documentation developed by consultants with whom they are comfortable, rather than established consultants with international reputations. It is natural to want the documentation to appear as favorable as possible but is much more important to develop documentation that is realistic and upon which international lenders and investors can rely.
You should absolutely contact us first. It is a tremendous advantage to you if we develop the project documents when it comes to securing financing for the project. Complete our Project Finance Request form and indicate that you have not yet prepared your project documentation.
No, we don’t insist on developing the project documents, you are free to engage third party consultants and professionals to produce your project documentation. However, the project documents must meet our standards and the generally accepted standards of international project investors and lenders. We will not accept an engagement to provide financing for projects that don’t have high-quality documentation. If your project documentation is produced by a third party with whom we are unfamiliar, we have to vet the documentation before we present the project to lenders.
Yes, Global Trade Funding can create the project documentation for your project. Having us develop the project documents significantly increases the likelihood of securing approval for the project financing because we can control the quality of the documents and we can craft the documents precisely the way lenders prefer them. We have a highly experienced Project Finance team that produces comprehensive market studies, financial feasibility studies, business plans, architectural plans, environmental surveys and all of the project documentation you need. We develop the project documentation for most of the projects we approve for financing.
While each project is unique, each project must also adhere to the generally accepted guidelines of international project finance that lenders and investors expect for project finance requests. While not absolute, you should reasonably expect documentation to include:
- a market feasibility study that includes an analysis of any competitors;
- a financial feasibility study that is modeled on cash flow and includes detailed revenue, expenses and profit, a ten-year forecast, a risk sensitivity analysis, detailed hard and soft costs, and detailed exit year calculations;
- a business plan with professional management structure that includes resumes and non-compete agreements;
- a development budget that details all expenditures that will be incurred prior to the commencement of project operations including contingency provisions;
- initial architectural plans and specs;
- an environmental impact assessment;
- a social impact assessment;
- an analysis of local government acceptance and anticipated government and public objections to the project;
- a private placement memorandum with an executive summary of all of the above addressed.
High quality, well-written project finance documents are essential in getting your project finance loan approved upon terms which are favorable to the project and its sponsors. There are more projects seeking financing than there is available funding. Therefore, potential lenders must be convinced that your project is not only a solid investment but that it is a better investment than the other requests for financing under consideration. Your project finance documents are the primary means of communicating this. Moving beyond the financing, the project documents are also vitally important for the success of your project.
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