Last edited 28 Mar 2018

Project-based funding

Project-based funding (sometimes referred to as 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. This can be an important source of funding for smaller development companies who may not have much security to offer.

Project-based funding can allow them to borrow money on the strength of the development. Larger or better-established companies may be able to borrow on the strength of their market position rather than the security offered by individual projects.

Project-based funding may also used as a way of financing large, infrastructure and industrial projects, based on the projected cash flow of the finished project. In this case, finance structures may involve a syndicate of banks and/or equity investors who provide the project with loans. In the UK this sort of project-based funding has been carried out under the private finance initiative (PFI) and public private partnership (PPP) systems.

The relationships on large projects can become very complicated, with a range of organisations with different interests to protect. Some of the key parties to project finance may include:

  • Private sector partner/owner: The company or limited partnership established to be at the centre of all contracts for the project.
  • Project sponsor: The party taking the active role of managing the project, who often has to cover certain project liabilities or risks.
  • Lenders: Parties such as commercial and investment banks who may form a syndicate.
  • Agent: Appointed from one of the lenders to act on behalf of the others.
  • Account bank: Held by a single lender, all money generated by the project will pass through.
  • Equity investors: Lenders or sponsors who do not have an active role in the project but are shareholders.
  • Suppliers, contractors, customers: Suppliers of materials, contractors involved in the building, and the customers of the project.
  • Construction company: Manages the construction of the project.
  • Multilateral credit agencies: Ensure the 'bankability' of a project by providing commercial banks with some protection against political risks.
  • Host governments/awarding authorities: National governments may be involved in issuing consents for the project.
  • Insurers: In the event of an insurable event, sponsors and lenders look to insurers to cover the losses.

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