What is Project Finance or Project Loan?
Project Finance or Project Loan is an integral part of Corporate Banking. Through this we get finance for a new project, Expansion of a project, Diversification or modernization of an existing project in Infrastructure and Non-Infrastructure Sectors. These loans are mainly for industrial, long term and public services related projects.
Major Sectors are Power, Roads, Airports, Ports, Manufacturing, Mining, Oil & Gas where Project Finance have been instrumental.
Important Features of Project Finance Loan
- Non-Recourse Financing : It means that borrowers and shareholders related to project do not have any personal liability in the case of monetary default. This is because project companies are majorly LLP entities. So, any recourse lender may have will be limited primarily or entirely to the project assets including completion and performance guarantee and bonds.
- Off Balance Sheet : It means that the project finance transactions is not consolidated with the main balance sheet of project sponsors or shareholders. The reason behind this is that the project company is a stand alone company known as a special purpose entity. The Off Balance Sheet feature of project finance attract project sponsors and participants as they do not load their balance sheet with debt, liability or defaults. It also do not affect their borrowing capacity.
- Capital-Intensive : These loans involve huge amounts. The long term project funding require crores of amount and hence capital involvement goes higher. These capitals are used to purchase assets and equipment required at various states.
- Cost of Financing : The projects involved in it have higher cost of finance as compared to typical corporate finance options. It follows a highly specialized finance structured which drives the cost higher and liquidity lower.
- Cash Flow Waterfall : In these loans the excess cash flow is diverted towards debt payments. It automatically accelerate the loan amortization and reduces the risk exposure of lender.
What are the Eligibility Criteria?
Eligibility to get Projects financed is not standard. It varies lender to lender. In case of Public Sector Banks like State Bank of India the minimum project Cost is as below
- Infrastructure Project Finance -Minimum project cost should be 150 crores
- Commercial Project Finance- Minimum project cost should be 500 crores
- In SBI RF Delhi – Infra Projects- Minimum project cost should be 75 crores
- In SBI RF Delhi – Non-Infra Projects- Minimum project cost should be 150 crores
Private sector banks & NBFCs like ICICI, IDBI, Mahindra Finance also provide thsese loans. They analyse the project profile and consider repayment assurance.
What are the Documents required?
The documents required for this lone is as below:
- Company profile with detailed range of project
- KYC of Promoters with their profile
- Audited balance sheet of 3 years
- Security offered
- Loan Purpose
How to Repay the Project Finance Loan?
Repayment of these loans are done through the generated cash flow in the project. The period of loan repayment is typically 10 to 15 years. In general equated monthly installment is fixed, bullet payments are also made to reduce the loan risk exposure. The repayment may be done through ECS mandate, PDCs. This is done as per the nature of project and estimated cash flow generation.
India is one of the fastest developing economy. Large commercial, Infrastructure and Non-Infrastructure Projects are demand and need both for the country. Keeping this in the mind, Our Loan Experts have gathered the detail on it. If any organisation needs the assistance and facilitation in getting project finance, Loan Guru will surely help them. For more please visit our page on Business Loan