Construction project funding
Funding is the means by which financial resources, typically capital, but sometimes also time, skills, land, information, etc., are provided for the purposes of a construction project. Funding tends to refer to reserves that are internal to the organisation, while the external sourcing of capital is referred to as financing (although the terms are sometimes used as if they are interchangeable).
Public projects can be funded by allocating the necessary amounts from departmental and/or local budgets. If the project crosses more than one departmental budget then the project sponsor is generally responsible for securing project funds by working with different budget holders.
Funding can come from reserves that are already allocated to capital expenditure (capex), which results in the acquisition, construction or enhancement of significant fixed assets including land, buildings and equipment that will be of use or benefit for more than one financial year. For more information, see Capex.
It can also come from operational expenditure (opex), which is expenditure incurred as a result of the day-to-day operations of a business. For more information, see Opex.
Since internal funding is generally limited, conditions are often attached to when funds can be committed, and the business planning cycle is often a determining factor for allocating funds.
There are several funding arrangements based on the formation of partnerships with external organisations, including:
- Private finance initiative (PFI).
- Public private partnership (PPP).
Some projects can be self-funding, which means that the earlier work stages generate enough revenue to fund the later work stages.
External financing of projects can take the form of loans, funds from shareholders, venture capital, grants, donations, subsidies, ‘crowdfunding’, and so on.
Project-based finance (or project-based lending PBL), is a system of financing a project in which the financial security is provided by the property being acquired or developed itself.
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