In the articles Help with Project Financing and Checklist Documentation Project Financing, we describe a number of specific characteristics of project financing. We list below the main differences between a project financing and a regular corporate financing.
The main differences between a project financing and a regular corporate financing:
- Repayment:
The repayment of a project financing is based on future expected cash flows from the project, while the repayment of a corporate financing is through general income of the company, based on past performance. - Liability:
With project financing, liability is limited to the project and the project company; with corporate financing, liability extends to the entire company and its subsidiaries. - Use Special Purpose Vehicle (SPV):
For a project financing, an SPV is established to bring debt and income of the project into a separate legal entity, separate from the assets of the shareholders of the SPV.
The corporate financing is provided to an existing company within the company. - Structure:
The structure of a project financing is complex due to the required seamless connection between construction contracts, supplier agreements and off-take contracts.
With a corporate financing, the structure is in principle simple, it is based on creditworthiness based on past performance. - Capital Requirements:
The capital requirements in a project financing depend on the risks of the project. Own contribution from the sponsors is required in any case, the more risky the project, the more own contribution will be required by the financiers.
For business financing, equity is basically not necessary. - Term:
The term of a project financing is long, usually linked to term SDE subsidy, while the term of a corporate financing with a term of basically five years is short.
If you have any questions about financing, whether regular or for a project, please do not hesitate to contact Onno Hakvoort or Bart Wilton.
