Project Financing provides access to working capital and commercial lending by using the proceeds from an upcoming project or an event as collateral. The difference, however, between Project Financing and Contract Financing is that Project Financing relies on progress payments being made throughout the term of the project while Contract Financing is paid in a lump sum.
Project Financing is very similar to Contract Financing in that it allows a company to obtain a loan based against a confirmed project and contract. In a Project Financing Loan, the loan proceeds are dispersed based on the project milestones, which enable the borrower to receive the liquidity they need throughout the completion of the project timeline.
Project Financing creates an innovative capital structure, which provides a company with the benefits of a traditional loan, but with more flexible underwriting requirements. Many companies that may not qualify for traditional commercial loans are able to receive Project Financing.
Project Financing can be an effective financing tool for companies in a variety of industries and stages. It provides short-term capital to companies that may not be able to access traditional commercial loans or that face other liquidity challenges.
Who Can Benefit from Project Financing ?
Any entrepreneur who may not have the credit history, meet traditional lenders’ time-in-business requirements, or the financial performance to borrow from a bank can benefit from Project Financing. It also is ideal for companies that need liquidity, but do not want to dilute their company by raising money from an outside investor.
Is Project Financing Right for Your Company?
There are many small and midsize companies that can benefit from Project Financing. Understanding when your company should utilize this unique liquidity and financing tool can make a significant difference in the growth, profitability and long-term value of your company.
There are many scenarios in which Project Financing may be the right choice for a company: