Traditionally, project finance has been most commonly used in commercial real estate, oil & gas, environmental, energy, and infrastructure projects where complex developmental phases exist with heavy demand for financing. But project finance methods using collateral enhancement could also be used in commercial start ups with a long pathway to revenue instead of using traditional Venture Capital equity or construction financing.
Project finance is based on projected cash flows of the operation rather than the balance sheet of the owners. The financing is secured by the project assets with returns dependent on project cash flow rather than the current revenue. The financial modeling, lifecycle of the operation, and scaleability become the most important elements to evaluate the potential returns on the investment. Whereas risks are determined by a number of factors including technical, environmental, economic, market, legal, geography, supply or off take contracts, management team and regulatory considerations.
The financing step may incorporate equity, debt, insurance, bond offerings, options, financial guarantees, surety, financial instruments or other types of collateral enhancement to mitigate risk. The size of the project may need to be syndicated to distribute risk amongst the investors. If the project is still on the drawing boards, the owners will need to find the seed money or some form of alternative finance against other collateral or assets to develop the project to a position where it is “financeable”.
Interliance Capital has spent years involved in project development and management and understands the complexity involved in securing the financing and at each phase of development. We have investors looking for long-term investment in well developed large scale projects. They seek the security of resources inherent in oil & gas reserves, metals and commodities reserves, real estate, plant & equipment from refineries, processing plants, and long term contracts such as road tolls, 20 year government PPA agreements and the like. They seek fewer investments for long term returns managed by strong boards of directors and corporate management teams. They seek to own producing assets to preserve their wealth while enjoying long-term profit returns.