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Financing Your Project

What 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.

    a) Market Development
    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
    The earliest stages are often funded internally by the potential client and the exporters. The intention is to develop the project along lines that will lead to either single-source procurement or that will produce terms of reference which could best be met by this supplier or group of suppliers.

    c) Pre-feasibility, feasibility or viability studies
    Once the project has been sufficiently developed for studies to be scoped out and costed, external funds can be sought. Sources can be contacted in both the private and public sectors, locally and internationally.

    d) Implementation
    Stages which require financing, probably from a variety of sources, include marketing to potential partners and to potential users, development of operating guidelines, development of curriculum, identification of specific courses, staff and other resources, adaptation or repair of facilities, acquisition of equipment, and start-up costs.

    e) Ongoing operation
    Funds for ongoing operation, maintenance etc. may be generated through user fees.


Sources of Project Financing

    a) For exporters
    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
    If your foreign client requires financing, your bank should be able to:

    • supply financing for your foreign client
    • provide your bank with payment insurance
    • work with your bank so that the foreign receivable is treated as a domestic receivable by your bank


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:

  • supply financing for your foreign client
  • provide your bank with payment insurance
  • work with your bank so that the foreign receivable is treated as a domestic receivable by your bank

Possible sources of financing:


Financing Global Projects

    a) Trends

    Several trends are influencing the financing requirements for major, multi-component projects, such as:

    • Requirement for single supplier
      Often the client, whether a host government or a private sector client, wants to deal only with one supply organization from the first project concept through to when the project becomes self-financing. This requires the identification of financing requirements and sources for the entire project at the earliest possible stage.

    • Overall technical and financial package
      At times, clients require suppliers to undertake the task of securing the financing package. As this then becomes part of the overall proposal, the competitiveness of the financing becomes a major factor in the competitiveness of the entire proposal.

    • Combined public-private sector financing
      Frequently, public sector financiers insist that the private sector also be represented in the financing package.

    • Increased project value
      The increasing cost of major projects is a major factor in forcing financiers to spread the burden and the risk over a range of different sources.

    • Pressure for privatization
      Many governments are eager to divest themselves of utilities and other assets and to implement cost recovery programs in all sectors.

    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:

    • which sources should be approached for financing for discrete components of the project
    • which should be asked to combine with others to undertake a percentage of the major costs
    • which sequence the potential sources should be approached


    It is also necessary to devise a fall-back position in terms of:

    • alternative sources
    • changing sequence in which financing will be secured for the individual components
    • redefining the components
    • rescoping the entire project on occasion


    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:

    • social impact
    • community development
    • gender sensitivity
    • environmental issues
    • evaluations of the sustainability of developmental benefits as well as some areas of particularly expertise such as:

        - cold ocean research
        - under-sea exploration
        - construction in tundra areas
        - distance education
        - commercial training
        - geomatics
        - bio-technology

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:

  • the end user
  • the organization’s representative office in the host country
  • Embassy or High Commission ("Post") in the host country
  • the head office of the Agency
  • the Post covering the Agency.

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:

  • The Food and Agriculture Organization
  • The International Atomic Energy Authority
  • The Inter Agency Procurement Services Unit
  • The International Air Transportation Authority
  • The International Civil Aviation Organization
  • The International Red Cross and Red Crescent
  • The International Fund for Agriculture Development
  • The International Finance Corporation
  • The International Labour Organization
  • The International Maritime Organization
  • The International Trade Centre
  • The International Telecommunications Union
  • The Pan-American Health Organization
  • The United Nations Conference for Trade and Development
  • The United Nations Development Program
  • The United Nations Educational, Scientific and Cultural Organization
  • The United Nations High Commission for Refugees
  • The United Nations International Children’s Emergency Fund
  • The United Nations International Development Organization
  • The Universal Postal Union
  • The United Nations Relief and Works Agency
  • The World Health Organization
  • The World Intellectual Property Organization
  • The World Meteorological Organization
  • The World Trade Office

Possible sources of financing:

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