Stage 4: Signing of loan and security documents and commencement of project implementation
Posted: Sun Dec 22, 2024 7:51 am
At this stage of project finance development, several key tasks need to be completed:
First, the loan and security documents must be signed. Since banks' legal departments are often primarily focused on protecting the interests of the lender, the draft agreements presented may not always take into account the needs of the borrower. However, given the bank's expenses already incurred at previous stages, the debtor has the opportunity to reasonably propose changes that will be more beneficial to him.
Technical support of the loan. It is necessary to regularly provide the bank with reports and documents on the progress of the project, fulfillment of the terms of the agreement, expenses and financial statements.
Improving the efficiency of the loan portfolio. After singapore business email list the completion of construction work, the risks for the lender become smaller. At this point, you can consider refinancing the loan on more favorable terms.
Download a useful document on the topic:
Checklist: How to Achieve Your Goals in Negotiations with Clients
Frequently Asked Questions about Project Finance
Project financing is an effective way to attract significant investment into promising ideas that will provide good returns and significant profits.
How to assess the risks of project financing?
The most reliable option is to cooperate with market leaders who have implemented many successful projects. However, for an organization that is just starting out, finding funding for an idea can be a difficult task.
Experts advise turning to professional investment banks, equity funds, government agencies and other large financial institutions. It is important to carefully check their credit history, income, rating and experience in project financing to be sure of the timeliness and full amount of receipts.
Investors also face big risks (inexperienced entrepreneurs, weak ideas or even fraud). To avoid losses, it is important to check the project history, the client’s financial condition and their reputation. However, if the initiative is successful, high profits can compensate for these risks.
What is the problem with project financing for potential investors?
If the project depends on a single asset or a small group of assets, it will be more difficult to find financing. The risks are increased because all the money to repay the loan comes from a single source. This makes PF more expensive compared to regular corporate financing. In this case, the money to repay the loan comes directly from the project itself, rather than from selling assets if problems arise. Therefore, project financing requires more information and approvals from lenders.
What types of contracts can be concluded under project financing?
In project financing, there are the following types of contracts:
An EPC contract (engineering, procurement, construction) is an agreement between a contractor and a customer, according to which the former undertakes to build and hand over a completed facility to the latter within a specified period.
An operations and maintenance contract (O&M contract) is an agreement that covers the maintenance and management of a project after its completion.
A concession deed is an agreement between a project organization and a government agency that regulates the terms of use and management of the project.
A shareholders agreement is an agreement between a company's shareholders that sets out rules not included in the company's charter. Such rules help protect the organization from external threats.
An off-take agreement is a contract in which a manufacturer promises to produce a certain quantity of a product and other companies agree to buy that product in the specified quantity.
A loan agreement is an agreement between a borrower and a lender that outlines the obligations and promises of each party.
A common terms agreement is an agreement between the financing parties and the project company that sets out the mandatory conditions for the use of the funds provided.
A terms sheet agreement for a project loan is an agreement that specifies the amount of the loan, the terms of its provision, the terms and methods of repayment.
For small and medium-sized businesses, loans, crowdfunding and other alternative financing methods are more suitable.
First, the loan and security documents must be signed. Since banks' legal departments are often primarily focused on protecting the interests of the lender, the draft agreements presented may not always take into account the needs of the borrower. However, given the bank's expenses already incurred at previous stages, the debtor has the opportunity to reasonably propose changes that will be more beneficial to him.
Technical support of the loan. It is necessary to regularly provide the bank with reports and documents on the progress of the project, fulfillment of the terms of the agreement, expenses and financial statements.
Improving the efficiency of the loan portfolio. After singapore business email list the completion of construction work, the risks for the lender become smaller. At this point, you can consider refinancing the loan on more favorable terms.
Download a useful document on the topic:
Checklist: How to Achieve Your Goals in Negotiations with Clients
Frequently Asked Questions about Project Finance
Project financing is an effective way to attract significant investment into promising ideas that will provide good returns and significant profits.
How to assess the risks of project financing?
The most reliable option is to cooperate with market leaders who have implemented many successful projects. However, for an organization that is just starting out, finding funding for an idea can be a difficult task.
Experts advise turning to professional investment banks, equity funds, government agencies and other large financial institutions. It is important to carefully check their credit history, income, rating and experience in project financing to be sure of the timeliness and full amount of receipts.
Investors also face big risks (inexperienced entrepreneurs, weak ideas or even fraud). To avoid losses, it is important to check the project history, the client’s financial condition and their reputation. However, if the initiative is successful, high profits can compensate for these risks.
What is the problem with project financing for potential investors?
If the project depends on a single asset or a small group of assets, it will be more difficult to find financing. The risks are increased because all the money to repay the loan comes from a single source. This makes PF more expensive compared to regular corporate financing. In this case, the money to repay the loan comes directly from the project itself, rather than from selling assets if problems arise. Therefore, project financing requires more information and approvals from lenders.
What types of contracts can be concluded under project financing?
In project financing, there are the following types of contracts:
An EPC contract (engineering, procurement, construction) is an agreement between a contractor and a customer, according to which the former undertakes to build and hand over a completed facility to the latter within a specified period.
An operations and maintenance contract (O&M contract) is an agreement that covers the maintenance and management of a project after its completion.
A concession deed is an agreement between a project organization and a government agency that regulates the terms of use and management of the project.
A shareholders agreement is an agreement between a company's shareholders that sets out rules not included in the company's charter. Such rules help protect the organization from external threats.
An off-take agreement is a contract in which a manufacturer promises to produce a certain quantity of a product and other companies agree to buy that product in the specified quantity.
A loan agreement is an agreement between a borrower and a lender that outlines the obligations and promises of each party.
A common terms agreement is an agreement between the financing parties and the project company that sets out the mandatory conditions for the use of the funds provided.
A terms sheet agreement for a project loan is an agreement that specifies the amount of the loan, the terms of its provision, the terms and methods of repayment.
For small and medium-sized businesses, loans, crowdfunding and other alternative financing methods are more suitable.