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Money Ideas For Business Start Up: Project Financing

Now with a high share of probability it is possible to predict situation development in separately taken industry or a segment for the term up to 10 years. However while not all banks are ready to incur the risks connected with project financing, the large credit organizations of federal level are engaged in this business basically.

Let’s result the general requirements shown to the borrower by banks at project financing. Disorder of figures here rather big, as well as the list of requirements: in one bank the company will ask to make a team of professionals in that industry in which new business opens, in other will impose serious restrictions on economic activities of again created legal entity (firms, as a rule, prefer to implement new projects within the limits of the isolated affiliated structures).

Bankers demand from the client participation in project implementation by own means not less than on 25 %. The rate on project financing, as a rule is on 1 ? 2 % above than in a medium-term credit on the investment purposes. Various banks have different restrictions on knockdown price of the agreement of project financing, the sums vary from several millions to several tens millions dollars. However, at projects implementation in regions the sum can be lowered, but it happens seldom enough. So considerable price of contracts speaks high costs which are born by bank by request and project implementation consideration. Term of granting of project financing at some credit organizations already now exceeds 10 years.

Risk of a non-return:

Unconditionally, project financing is more risky, than other forms of financing. Unlike mortgage lending, here not always there is a possibility of reception of adequate pledge. We take for an example financing of building of object of a commercial real estate. Here banks try to adhere to as much as possible conservative policy as, despite a great demand on real estate, developer projects, as a rule, are encumbered by some “national” features.

Among them legal risks: licenses and building licenses and ground area registration frequently turn out already after the building begins. Certain risks accompany also process of erection of real estate: the adherence to deadlines and quality control are required. Not to mention tenants or final buyers of real estate: Guarantees of returning of the enclosed means at the expense of a lease payment so, tenants and buyers also should be financially well-founded are necessary for bank.

In the light of last forecasts of analysts which expect decrease in value of erected habitation and objects of a commercial real estate because of falling of demand for them, the bank also demands certain guarantees of financial soundness of the borrower in case of sharp change of a market situation, for example, falling of rates of rent below the level pledged in the business plan.

Specialists of bank should consider all factors influencing project implementation: capabilities of management which will perform this project, reliability of the conducted market researches, predicting it is sold offered to production (tenancy of premises), and correctness of drawing up of financial calculations.

Besides check of all given documents, insurance of objects of pledge, entering in board of directors of the company of the bank representative with functions of the financial controller, tracing of dates of performance of the project can become additional method of decrease in risk for bank.

The days when governments have been flooding people with all sorts of grants have passed. At least for some time. But that does not mean that you must get rid of the idea of getting small business grants.

Everything is possible with wise approach; small business grants including.

Go to this blog for more helpful tips about grants, how to apply for grants, grant examples, traps and ticks of the grants. This information will help you to get small business grants or any other grants faster.

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