Whether it is a small business project or a big industrial project, it needs funds to begin and sustain operation. Project financing is a funding method to finance long term BOT (build, operate and transfer) projects primarily for the revenues from a project to be set off against the repayment of principle and security for investment.
Project financing is generally a good option for big complex projects managed by infrastructure and industrial development companies like Alpha utilities ltd which is a utility project development and operation company.
Some of the best project and business financing options are:
Factoring: It is a method where a company gets cash up-front by selling its receivables at a discount. It is common among companies that either have a poor credit or has to fill large orders before payment. Factoring companies bid on the receivables along with finance companies including banks and hedge funds.
Loans: Banks are the most attractive source of capital financing for large projects. Although the amount is dependent on the company, amount and size of the project, an established company can command a higher amount of loan on better terms including interest rate and repayment period.
Crowdfunding : crowdfunding is a rather new concept in the realm of financing more suited to consumer companies. It utilizes the freedoms of democracy to appeal to the masses to contribute small amounts if they want the proposed products. Startups have successfully raised millions of dollars without having any obligation to repay the amount. But it isn’t a long term financing options as it specifically focuses on a single short term project so it’s good for small creative projects.
Private investment: negotiations with the bank may not always work out. In such a case private investors such as equity investors, venture capitalist and angel investors are coveted. And there are plenty project finance companies in uae and other parts of the world. But it’s a little trickier than that as they all fund the companies in different stages and types so finding the best alternative undeniably requires a thorough research. Another advantage is that some private investors take active part in management of the company to ensure a quick return on investment with decent profits.
Public offering: publicly traded companies have the liberty to raise the money required to fund pending projects by issuing new outstanding shares. This way public companies can maintain their debt to equity ratio but the issuing company should keep in mind the risks involved.
Bonds: inversely to issuing equity, companies also have the option to raise money through corporate bonds which has several benefits. While it does affect the balance sheet by affecting the financial ratios, but it doesn’t directly affects the market value of the company, a risk which is present in public offering.
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