Top Factors for Project Finance Approval
1. Matching project finance lenders with their area of interest.
Lender's appetites vary depending on their experience and what they feel most comfortable with from an industry, growth, location and overall risk perspective.
Some have narrower niches
and may only provide funding for energy projects in the U.S. for example. Others may be open to almost any niche in multiple countries. So matching your project finance loan request with the appropriate project finance company is very important. Naturally, submitting your loan request to a company that does not fund in your niche is a waste of time.
One of the benefits of our project finance services
is that we do the work of matching your project with our funding partners which is a long list of lending investors and loan providers for large project financing serving most niches (see above).
2. As mentioned, the more you bring to the table
for investment into the project through your own cash or monies raised from equity investors, the greater chance you can receive a loan
for your project. This comes in the form of what you have already invested in your project and also what you will be investing in the future.
For example, if you are building a new commercial development and already own the land
you will be building on, you have already invested in the project and are in a stronger position for loan approval. This also means that your project is closer to completion and profitability than one that has not acquired the land yet.
3. Your presentation
- do you have a well thought out business plan and are you presenting in a clear, concise and comprehensive way with your executive summary? If you have not prepared a compelling business plan, can you expect a project finance lender to provide you with $10M+?
Financial and Collateral Strength
- In lieu of any interest reserves provided by the lender, what sources of cash do you have to make the loan payments while your project is being constructed? Does your management team have a high net worth
In event of default on the loan, what is the collateral (land, buildings, equipment, business good will, intellectual property, etc.) worth and how strong is the market to sell this collateral or takeover the operations?
4. Experience and Quality of the Management Team
- A project finance lender will be asking what experience the management team has had with developing a project like or similar to what they are proposing now and to what extent was it successful. More experience means a higher chance of success with your new venture and less chance of default on the loan.
The lender will also be asking about the previous experience and success of the management team in general - do they have the education and track record in the industry for this new project?
5. Profit Potential
- Simply put, is this a profitable venture and do the proforma financials make sense? Based on comparable projects, is this project in an industry and market location that has a high chance of profitability and to what extent?
6. Your Attitude and Approach for the Funding Process
- Here is an inside tip that you will not hear anywhere else. At the same time it is so common sense, you are not likely to think about it. This can easily make or break the deal for you in dealing with lenders for project finance.
So many times people come to us asking for money with the following attitude and approach:
a) They think they are entitled
to a loan approval regardless of the strength of the project.
b) They are not forthcoming
with information that is requested from the lender and try to hide information that they don't want the lender to see.
c) They try to control the lending process
and dictate to the lender how the lending process will work, what they will provide, the timeline involved, etc. What they don't realize is when a borrower comes to a lender asking for millions of dollars while trying to tell the lender how to do it's job hurts their chances of approval. By getting in the way of the necessary steps of the loan process, it makes it impossible for the lender to accurately assess the risk in the process and move forward.
Borrowers need to come to a lender with confidence based on the strength of their project
and not by how much they think they can manipulate the lender and the lender's process.
Project finance lenders are no different
than any other person - they want to work with people that are pleasant and respect them enough to let them do their job.
These are some of the top factors above. Each lender will have their own emphasis of what is most important to them and why. It is great if you have most of these covered but if you do not, it does not mean that you will not qualify
for a project finance loan.
You may have strengths in some areas that will be beneficial enough even when you have weaknesses in others. Also note that their are other financial instruments and equity investors that can be used to put you in a stronger position for approval.