Project Finance A financing of a particular economic unit in which a lender loo…

Project Finance

A financing of a particular economic unit in which a lender looks initially to the cash flows and earnings of that economic unit as the source of funds from which a loan will be repaid and to the assets of the economic unit as collateral for the loan.

Key Features:
-Collateral for the loan would be Project Assets.
-Effect on financial elasticity – None or heavily reduced effect for sponsors.
-Accounting Treatment as Off Balance Sheet.
-Degree of Leverage Utilizable – Depends on the cash flows generated by the economic unit i.e. project.
-Granting of project finance would be depend upon Future Cash Flows as depicted from the projection of the feasible/viable project.