What is Project Finance ?

Project Finance or Project loan is a loan available to new project from a nationalized bank for purchase of machinery, equipment, electrification etc. and for construction of building or shed etc.

• FEATURES
• ELIGIBILITY
• TYPES OF LOANS OFFERED
• SECURITY
• PROMOTERS BACKGROUND
• TYPES OF BORROWERS

FEATURES

Project Loan is provided to borrowers for the purpose of capital expenditure including setting up of new/ additional manufacturing facilities, Construction etc. Project loan is also available to acquire the fixed assets like land & building, plant & machinery, computer system, equipment, furniture, electrification etc.

ELIGIBILITY

All public sectors and private sector companies and firms are eligible for project finance.

The firms or companies must fulfill all required norms for eligibility of loan. The borrower should provide all required documents and information to the bank. The authorized person of bank will scrutiny your loan proposal for project finance and check feasibility and viability of your new venture and sanction or reject the proposal.

TYPES OF LOANS OFFERED

The following types of loans is offered by the bank in project finance:

• Term Loan for Construction
• Term Loan for Purchase of Machinery or Equipment
• Working Capital Demand Loan
• Bank Guarantee

Term Loan for Construction

• Term loan for construction is available at 60% of total estimated cost of construction given by approved engineer of bank. The promoters have to invest minimum margin at 40% of total estimated cost of construction as capital or unsecured loan from friends or relatives as per acceptable debt and equity ratio by bank.

Term Loan for Purchase of Machinery and Equipment

• Term loan for purchase of machinery and equipment is available at 75% of total cost of machinery and equipment as per quotations and projections. The promoters have to invest minimum margin at 25% of total cost of machinery and equipment as per quotations and projections as capital or unsecured loan from friends or relatives as per acceptable debt and equity ratio by bank.

Working Capital Demand loan

• Working capital demand loan is known as Cash Credit facility or Overdraft facility which is provided by bank for maximum of one year and payable on demand. After one year borrower have to apply for renewal of the working capital loan. The working capital loan is given as 20% of projected turnover i.e. sales of first year after commencement of production or unit. Bank will renew credit facility on the basis of actual turnover of last year after one year of sanction.

Bank Guarantee

• Bank guarantee (BG) is used to strengthen and/or secure an obligation under a commercial contract. Customers can apply to the Bank to issue BG in favour of a Beneficiary. After examining and approving the application, the bank executes an agreement with the customer with the required terms and conditions. The bank will then issue the guarantee. 
• Deferred payment guarantee is provided when the guarantee is backed by adequate tangible security or by counter guarantees of Central or State Governments, public sector financial institutions or other companies

SECURITY

Primary

• Entire project assets both movable and immovable including land of factory building, project cash flows, intangible assets, current assets etc are consider as primary security.

Collateral 

• Extension of charge over current assets
• Additional tangible security such as immovable properties / bank deposits etc. Immovable properties such as residential house of promoter, commercial or industrial plots or building or all.
• Pledge of promoters holdings
• Expected % of security is ranging 50% to 120% of total amount of loan.

Others 

• Personal guarantee of Proprietors / partners / promoters.
• Corporate Guarantee 

PROMOTERS BACKGROUND

Essential part of the project finance or project loan is promoters background. Any of the promoter should have experience or technical know how of the line of the business or related to new project for which they are applying at bank.

TYPES OF BORROWERS

The borrower may be proprietor or partnership firm & partners or company & directors.