Project Finance
Project financing is a non-traditional financing technique that is now being used even by many high-profile corporate projects. It is increasingly emerging as the preferred alternative to finance fixed assets and other large-scale projects.
As a study, Project Finance includes understanding the rationale for project financing, how to prepare the financial plan, assess the risks, design the financing mix, and raise the funds.
As per the International Project Finance Association, ‘Project Finance’ is defined as “The financing of long-term infrastructure, industrial projects and public services, based upon a non-recourse (Project Finance that is secured by some sort of collateral, usually property, plant, equipment etc. is known as non- recourse financing) or limited recourse financial structure (where project debt and equity used to finance the project are paid back from the cash flow generated by the project)”
Project finance is finance for a particular project, like the hospital in our case, which is repaid from the cash-flow of that project. It is different from the traditional forms of finance because the financier principally looks to the assets and revenue of the project in order to secure and service the loan. Usually, no recourse shall be provided by the non-project assets of the borrower. In this situation, the credit risk associated with the borrower is not as important as in an ordinary loan transaction; what is most important is the identification, analysis, allocation and management of every risk associated with the project.
Figure 1: Features of Project Finance
Term Loan
A Term Loan is a loan with a maturity date but no amortization. The borrower pays the interest monthly, quarterly, or annually, a...
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...of credit and bank guarantees come under non fund financing. They remain dormant in the balance sheet till the transactions are within their limit.
Letter of credit – A buyer issues a letter of credit in favor of the seller from his issuing bank. After the seller dispatches his goods, he goes with the required documents to the Confirming Bank, who gives the guarantee of payment. The seller then can choose any bank for negotiation of its letter of credit.
Bank Guarantee – Bank issues guarantee that in case of an occurrence or non-occurrence of a specified event, the bank shall make good of any loss suffered. The guarantee is issued upon receipt of a request from applicant for some purpose/transaction in favor of a Beneficiary. The issuing bank will pay the guarantee amount to the 'beneficiary' of the guarantee upon receipt of the claim from the beneficiary.
The first scenario is that Bo Broker Company will accept a non-interest bearing or unsecured negotiable note that is payable over the life of the related
Bank guarantees are guarantees given by supplier’s/contractor’s bank to the buyer/principal, promising to pay on demand and without demur, (these guarantees take place when there happens a contract between a bank and a customer) the sum of money mentioned in the bank guarantee , if it is invoked by the buyer/principal before the date of expiry of the bank guarantee mentioned in it.
...f project. Furthermore, the successes of a project can be guarantee by identifying the procurement variables that have a major influence on risk management such as project delivery method, form of payment, and the use of collaboration or partnering arrangements. However, many projects suffered from variations in cost affecting in the present which is the risk management was not carried out consistently throughout the project stages. Nevertheless, in the projects with early involvement of the clients and their participation, the chances for open talks and collaboration throughout suitable procurement selection can produce an efficient risk management procedure for the project. While project delivery methods define formal risk allocation, the use of incentives and collaboration or partnering arrangements help to establish a collaborative approach to risk management.
We will work closely with our bank, which was selected because of its import and export programs. Initially, we will pursue secured financing options, with the bank advancing funds by using the goods we import as collateral. If we default on our secure financing obligations, the bank takes title of our shipped goods. As we are a start-up company, we will not qualify for unsecured financing until we have established a positive credit record with our bank.
Patanakul, P., & Milosevic, D. Z. (2010). They are business leaders at Spotlight Corporation. In D. Z. Milosevic, P. Patanakul, & S. Srivannaboon, (Eds.), Case studies in project, program, and organizational project management (pp.409-416), Hoboken, NJ: John Wiley &
A project is a temporary endeavour undertaken to create a unique product or service. They are goal oriented, have a definite start and finish time, must be done within cost, schedule and quality parameters. Projects involve the coordinated undertaking of interrelated activities (Project Management: Achieving Competitive Advantage). According to Tom Peters, “Projects, rather than repetitive tasks, are now the basis for most value-added in business”. Based on this, it is clear that projects are of utmost importance to businesses in both the service and the manufacturing industries.
Project finance is not the same thing as "financing project " because the project may be financed in many different ways. Traditionally, the large scale public sector project in the developed country were financed by public sector debt, Private sector were financed by large companies raising the corporate loan. But in developing country project were generally financed by the government borrowing from the international banking market world bank such as world bank, throgh export credit.
Line of credit: They are a specified amount of money accessible for a specified time period, usually for a year. They can be drawn as needed during seasonal shortages of cash and this is the problem which is face by Dinner Bell hotel. They are of two types; committed and uncommitted. Committed is guaranteed when he company meet all of the conditions and Sarah does not approve of the conditions imposed by the bank thus she could go for uncommitted line of credit. However it has its flaws which are that in uncommitted the bank does not guarantee that it will give loan when the company needs it thus Dinner Bell could not rely upon it. Another flaw is that
One of the financial problem is lack of monitoring on the project cost and the cash flow will affected the company financial problems (S. A. Halim et al.,
Loan – A loan is when the business would borrow a fixed amount of money, this would normally be paid back in monthly segments with
Project C and D are acceptable as both of their payback periods are less than the pre specified number of years which is 3 years in this case. According to the payback method of analysis, projects with shorter payback periods are better to invest in, Hence, project D should be accepted as it is most liquid and less risky to
“Project management is the application of knowledge, skills, tools, and techniques to organisational and project activities to achieve the aims of an organisation through projects” (PMI, 2003).
Project management involves all activities that encompass scheduling, planning, and controlling projects. A successful project manager ensure that an organization’s resources are being used both efficiently and effectively. Most projects need to be uniquely developed require a sense of customization and the ability to adapt to any posed challenges. The scope of effective project management includes defining what the project is and what is being expected to be accomplished. Projects are imposed to fulfill a certain need and project managers must have the ability to create the proper definition. Goals and the means used to attain those goals have to be clearly stated. Project Managers must also have the ability to plan
When planning a new project, how the project will be managed is one of the most important factors. The importance of a managers will determine the success of the project. The success of the project will be determined by how well it is managed. Project management is referred to as the discipline that entails the processes of carefully planning, organizing, controlling, and motivating the organization resources so as to foster and facilitate the achievement of specific established and desired goals and meet the specific criteria of success required in the organization (Larson, 2014). Over the course of this paper I will be discussing and analyzing the importance of project management.
Short-term finance is an amount of money, which is borrowed, will be repaid in one year. (Nickels, McHugh, McHugh, N.D.)