Financing Your ProjectWhat is project financing? Project financing is the process of obtaining significant funds, generally from a number of sources, for a variety of activities, over an extended period of time. This search for funding is frequently carried out cooperatively by a number of suppliers. For some components of a project, financing may be sought as if for a single transaction.
The Stages in Project Financing Financing is required at every stage leading to and during the development of a project. Often, funding is required from a number of sources at the various stages. The establishment of a tertiary or post-secondary education centre is an example of this type of progression.
Market development funding is generally supplied from the exporter’s own resources, but can also be sourced from programs such as PEMD. Increasingly, groups or business networks are pooling resources to undertake such market development. b) Project Inception c) Pre-feasibility, feasibility or viability studies d) Implementation e) Ongoing operation
Sources of Project Financing
The commercial financial institutions are developing trade programs which assist the services exporter in sourcing financing for international sales. The institutions are establishing trade development departments which work with services exporters to identify financing options best suited for the exporters’ needs. Financing currently available to you for your export sales is the same as for domestic work. When you need bridge financing until revenue is available from contracts, you can approach your bank as though you were seeking financing for a domestic sale. b) For foreign clients
Financing Market Development for Projects Corporate Financing is by far the most common source of financing for market development activities. In general, large companies set aside a percentage of revenue for ongoing market development. Smaller companies may form partnerships to offer complementary services and to either coordinate their market development work for maximum impact, or to combine their efforts to reduce costs. Even on large projects led by large firms, small companies or individual consultants can contribute their expertise in the development of project concepts, preparation of proposals, etc. as their contribution to gaining the contracts that will eventually lead to revenue generating work. Assistance in marketing is a component of a number of the regional and sectoral programs that are made available from various levels of government. For example, the Program for Export Market Development is a country-wide, cross sectoral program.
Financing Pre-feasibility, Feasibility and Viability Studies It is important to be close to financial sources within the host country as this can be a major source of project financing in many countries with the exception of a number of developing countries. Ensure that the personnel you work with in your commercial financial institution are aware of their own trade programs for exporters of services to:
Possible sources of financing:
Financing Global Projects
Several trends are influencing the financing requirements for major, multi-component projects, such as:
b) BOT, BLT, BOO, BOOM, BOOT, ROM and ROT Build Own Transfer (BOT), Build Lease Transfer (BLT), Build Own Operate (BOO), Build Own Operate Manage (BOOM), Build Own Operate Transfer(BOOT), RehabilitateOwn Manage (ROM), and Rehabilitate Own Transfer (ROT), are part of a growing lexicon that reflects the variety of approaches used by owners, financiers, and project developers in response to the global trend towards privatization, cost recovery, the need for all activities to become financially self-sufficient as quickly as possible, and the increased scale of projects. Clients are increasingly requiring suppliers to take responsibility for the long-term technical and financial well-being of projects which, in the past, would have been the property of the client during or immediately after the completion of the project (e.g. construction of the facility, establishment of the courses, or commissioning of the services).
c) Multi-source Financing As the scale of major projects increases, they require financing from a wide range of sources, and it is important to develop a sound strategy in terms of:
It is also necessary to devise a fall-back position in terms of:
d) Host Country Financing Except in some developing countries, the host government and the private sector are constantly increasing their responsibilities for the development of projects. While this does spread the burden, it also removes the need for IFI financing. Private sector financing is of increasing importance in all projects. In many cases this involves both the supply side and the private sector in the host country.
e) Third Country Financing (e.g. Japan) Some of the funding available under Japanese Official Development Assistance can beused to finance work being carried out by non-Japanese companies. Although not a legal requirement, such access can best be achieved by working as a sub-contractor to a Japanese prime contractor. Companies interested in this process should be in contact with major Japanese companies very early in the inception stage of projects, even before there is any formal discussion of financing. Several separate organizations handle Japanese ODA. Decisions about which to contact for any particular project or component are best made by the Japanese lead company. Areas in which Japanese companies are particularly interested in having partners or sub-contractors are the "softer" elements of development such as:
Possible sources of financing:
Project Component Financing Project component financing can, in most aspects, be approached as if seeking financing for a single transaction. Note that lenders will wish to be reassured about the overall viability of the project. In case Japanese companies are involved in an overall project, it may be useful to contact tem to discuss whether they are interested in financing any components of the project. Possible sources of financing:
General Sources of Project Financing Projects are increasingly initiated by the private sector and tend to be complex and expensive. The competitiveness of the financing package is becoming an overwhelmingly important component in the acceptability of the overall project package. As a result, the ability to bring together multi-source competitive financing has become a critical factor in winning international projects. Success involves being able to bring together a mix of local, foreign and multinational private and public sector sources. Good starting points are: your commercial bank, EDC and CCC, and then branching out to the IFIs, foreign commercial sources, Japanese ODA if any Japanese companies will be involved, and, of course, the source in which your client expresses confidence. Possible sources of financing:
United Nations Financing Sources To access funding through UN agencies for sectoral projects, primarily in developing countries, you will likely have to work, for each project, with at least two of the following:
Sectoral UN Agencies which fund consulting, technical and management projects or can assist in attracting public or private sector project financing are generally referred to by their initials or acronyms and include:
Possible sources of financing:
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