This technique is the receipt and direction of borrowed funds in favor of a business object, which will pay off in the future. Enterprises have the opportunity to perform work without the presence of collateral. Project finance is also called investment credit. Its main feature is that monetary resources are issued not under a state guarantee, but under those funds that the project itself will create after implementation. Some experts consider this financing to be risky, low-income
Types of project financing
With limited recourse for the borrower. Feature - sharing of risks between all parties involved in the process. Thanks to this, each of them is maximally interested in the successful implementation of the project. No recourse to the borrower. The risks are borne by the lender. For investors, this method is promising and popular, as it is more profitable. With complete recourse to the borrower. The borrower is responsible for the timely return of borrowed resources in full in accordance with the agreement. Usually this method is used when financing not very profitable projects.
Disadvantages of project finance
As with any method of financing, investment lending has weaknesses. If multiple investors are involved, the transaction costs increase. A large amount of documents is required to complete a set of procedures. In addition, project financing is characterized by high interest rates on the loan.
The main disadvantage for the borrower is the loss of independence, since in most cases investors reserve the right to purchase securities in the event of a successful project. More here - https://www.worldbank.org/
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