Advantages and disadvantages of project financing

Due to the huge investment and long construction period, the project financing faces many uncertain risks, so in practice, the project financing guarantee design plays an indispensable role in the project financing structure, which can be said to be? Lifeline of project financing structure? . The following are the advantages and disadvantages of project financing that I have compiled. Thank you for reading.

Advantages and disadvantages of project financing 1. First of all, the limited recourse clause ensures that the project investor will not endanger other assets of the investor when the project fails.

2, the second is in the national and government construction projects, for? See? For large-scale construction projects, the government can deal with the negative impact of debt on the government budget through flexible and diverse financing methods.

3. Third, for multinational companies to invest in overseas joint ventures, especially for enterprises that have no operational control rights or invest in high-risk countries or regions, other businesses of the company can be effectively isolated from project risks, thus limiting project risks or national risks.

4. It can be seen that project financing, as a new financing method, has greater attraction and operating space for large-scale construction projects, especially capital-intensive projects such as infrastructure, energy and transportation.

Characteristics of project financing 1. Exclusivity of financing subject

Project financing mainly depends on the future cash flow of the project itself and the assets formed, rather than relying on the credit of the project investors or sponsors and assets other than the project itself to arrange financing. The exclusiveness of financing subjects determines that creditors are concerned about how much of the future cash flow of the project can be used for repayment, and its financing amount and cost structure are closely related to the future cash flow and asset value of the project.

2. Limitation of recourse

Traditional financing methods such as loans pay more attention to the credit and real assets of project borrowers while paying attention to the investment prospects of the project. The right of recourse is complete, and the project financing method is about the project as mentioned above. Unless otherwise agreed with the contracting party, the creditor cannot pursue any form of assets other than the project itself, which means that the project financing depends entirely on the future economic strength of the project.

3. Dispersion of project risks

Due to the exclusiveness of the financing subject and the limited recourse, all kinds of risk factors and benefits as project signatories are fully displayed. Determine the maximum risk that all participants can bear and the possibility of cooperation, and use all advantages to design the most favorable financing plan.

4. Diversity of project credit

Provide diversified credit support for all future risk points of the project to avoid and resolve uncertain project risks. If the project is necessary? Product? Some buyers sign long-term purchase contracts (agreements), and raw material suppliers supply goods at reasonable prices to ensure strong credit support.

5. Complexity of project financing procedures

The project financing is large in amount, long in term and wide in scope, covering all aspects of the overall design and operation of the financing scheme, and requires many legal documents. Its financing procedure is more complicated than traditional financing. Moreover, the proportion of upfront expenses to the total financing is inversely proportional to the project scale, and its financing interest is also higher than that of corporate loans.

The application condition for project financing is 1. The project itself has been approved by government departments.

2. The project feasibility study report and project design budget have been reviewed and approved by relevant government departments.

3. Introduce foreign technology, equipment and patents. It has been approved by the government's economic and trade department and has gone through relevant procedures.

4. The technical equipment of the project products is advanced and applicable, with complete supporting facilities and clear technical support.

5. The production scale of the project is reasonable.

6. It is estimated that the project products have good market prospects and development potential and strong profitability.

7. The project investment cost and various expenses are predicted reasonably.

8. The raw materials required for the production of the project have a stable source, and a supply contract or letter of intent has been signed.

9. The project construction site and construction land have been implemented.

10, water, electricity, communication and other supporting facilities required for project construction and production have been implemented.

1 1. The project has good economic and social benefits.

12. Other construction conditions related to the project have been implemented.