Project Finance and Loan Analysis Essay

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Project Finance Project financing is a non-traditional financing technique that is now being used even by many high-profile corporate projects. It is increasingly emerging as the preferred alternative to finance fixed assets and other large-scale projects. As a study, Project Finance includes understanding the rationale for project financing, how to prepare the financial plan, assess the risks, design the financing mix, and raise the funds. As per the International Project Finance Association, ‘Project Finance’ is defined as “The financing of long-term infrastructure, industrial projects and public services, based upon a non-recourse (Project Finance that is secured by some sort of collateral, usually property, plant, equipment etc. is…show more content…
Term loans are usually the basic vanilla commercial loan and bankers classify them into two categories:  Intermediate-term loans: Usually running less than three years, these loans are generally repaid in monthly installments from a business's cash flow.  Long-term loans: These loans are commonly set for more than three years. Most are between three and 10 years, and some run for as long as 20 years. Long-term loans are collateralized by a business's assets and typically require quarterly or monthly payments derived from profits or cash flow. Term loans are most appropriate for the established small businesses that can leverage sound financial statements and substantial down payments to minimize monthly payments and total loan costs. The best use of a term loan is for construction; major capital improvements; large capital investments, such as machinery; working capital; purchases of existing businesses. Fortunately, the cost of such a loan is relatively inexpensive if the borrower can properly allocate such loans to generate funds. The bankers usually look at the five “C’s” before giving any term loan: Figure 2: The 5C's of Loan Analysis  Character: Character is the judgment of a banker about the borrower. A banker often checks the previous loan and repayment history of the borrower to see how trustworthy the borrower is. A banker also sees the educational background and experience of the borrower to see the borrower’s hands on experience. 
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