Project Financing

Means of Finance
• Equity Capital
• Preference Capital
• Retained earning
• Debt Capital (Debentures or Bonds)
• Term Loans
• Venture Capital
• Lease Financing and Hire Purchase
• External source
 Term Loan
• It is a long term debt provided by
commercial banks and / or financial
institutions mainly to acquire fixed assets
for a project
 Features of Term Loan
• It is a type of debt financing
• FIs provides Rupee TL and foreign
currency TL
• Mainly for investment in fixed assets
• Also for getting technical know how,
preliminary expenses and margin money
for working capital
• Foreign currency term loan for import of
plant and machinery
 Features of Term Loan
• Assets which are financed with TL is the
prime security
• Other assets of the firm can be collateral
• Repayable in equal half yearly or quarterly
installment
• Interest rate charged is as per credit risk of
the project
• In case of default of payment penal
interest is charged
 Features of Term Loan
• In a typical term loan, principle amount remains
constant, but interest burden declines over a
period of time
• Various restrictive clause may be applied on
borrower
– Refrain from undertaking any new project without
approval of the FI
– Refrain from additional borrowings without consent of
FI
– Nominee Director on the board
 Term Loan procedure
• Submission of loan application with Project
Report
• Project Report contains
– Promoters’ background
– Particulars of the firm
– Particulars of the project
– Cost of the project
– Means of financing
– Marketing and selling arrangements
– Profitability and cash flow
– Government consent
 Term Loan procedure
• Initial processing of loan application
– Additional information may be asked
• Detailed appraisal of proposed project
– Marketing, technical, financial, managerial
and economic appraisal
• Issue of letter of sanction
• Acceptance of terms and conditions by the
borrower
– By passing appropriate resolution
 Term Loan procedure
• Execution of loan agreement
– FI sends the draft agreement to the borrower
which is to be signed and stamped by the
borrower
• Creation of charge over security
– Creation of mortgage, deposit of title deeds
and hypothecation of movable property
 Term Loan procedure
• Disbursement of loans. Borrower is
required to submit following information
– Physical progress of the project
– Financial status of the project
– Contribution made by promoters
– Projected fund flow statement
– Compliance of statutory requirements
• Based on such information disbursement
of loan amount is decided
 Term Loan procedure
• Monitoring of Loan
– It is done at two stages, implementation stage and
operational stage
• Implementation stage monitoring
– Regular reports from promoters
– Periodic site visit
– Progress report submitted by nominee director
• Operational stage monitoring
– Quarterly progress report
– Periodic site visit
– Progress report submitted by nominee director