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Do You Know The Challenges For Project Owners And Borrowers To Secure Project Financing?

At Hakim Saya, we work exclusively with a select group of capital funders specializing in project financing. They finance projects globally, except in countries where the United States of America, the United Kingdom, and Canada imposed international sanctions. Our project financing starts at USD/EURO/GBP 5 million and goes up to 5 Billion. Certain lenders will require a minimum project size of USD 50MM or USD 100MM, and most lenders in our network provide short-term mortgages, not long-term ones.

Most of our lenders require borrowers to have between 20% to 30% cash equity to complete their projects. However, our flagship lender provides 100% Financing (60/40 Joint-Venture), with a 60% loan and 40% equity shareholding. Even with a 100% financing program, borrowers are responsible for paying for the total overall funding costs/closing costs.

Please note that due to the nature of our industry, our clients have entered into confidentiality agreements with both the lender and us, making it impossible for us to reveal any names on our website. Each transaction is treated as private and is safeguarded by a confidentiality agreement. Therefore, we do not employ our client's information to secure new business from third parties.

One area of specialization of Hakim Saya is project financing. While we love assisting prospective borrowers with their project financing needs, we come across many project owners, borrowers, sponsors, or promoters who have no idea how complex it is to secure project financing. Along with it are brokers/introducers who have no clues about project financing but want their client's projects to get financing. Brokers/introducers must be their client's trusted advisors to provide information on securing project financing with lenders. If they don't know how project financing works, then brokers/introducers have no business to be in the project financing space.

In our experience when working with prospective borrowers, we realized that most borrowers have no capital to pay for all costs associated with securing project financing but ask for millions of dollars. They have no capital invested in the projects or skin in the game, but they want the lenders to take all the risks. Projects with no capital are too speculative. No lenders will ever hand over millions of dollars to any borrowers when the project owners, borrowers, sponsors, or promoters have no equity. These are pipedreams. Why must lenders take risks on their projects when the projects are theirs to begin with?

Project financing is complex. It involved many moving parts, different players, and entities, and securing project financing is challenging for project owners, borrowers, sponsors, or promoters. Traditional financing methods such as bank loans, equity, and bond issuances have become increasingly difficult to obtain due to several reasons, such as regulatory constraints, market volatility, and the economic impact of COVID-19. In this article, we will discuss the challenges project owners and borrowers face to secure financing and suggest alternative capital market lenders that can be approached to secure project financing. 
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CHALLENGES FOR PROJECT OWNERS AND BORROWERS TO SECURE PROJECT FINANCING:

  1. Project feasibility: Project financing requires a detailed feasibility study that covers all aspects of the project, including technical, financial, environmental, and legal aspects. Many projects fail to secure financing due to inadequate project feasibility studies or a lack of detailed financial projections. 
  2. The borrower's creditworthiness is a significant factor in securing project financing: Borrowers with a poor credit history or weak financials will struggle to secure financing, as lenders are hesitant to lend to high-risk borrowers.
  3. The project's creditworthiness: A project's creditworthiness refers to its ability to repay any debt obligations it may incur. In other words, it assesses the likelihood that the project will be able to generate sufficient cash flow to meet its debt service requirements. To determine the creditworthiness of a project, lenders and investors will typically conduct a thorough analysis of several factors, such as project feasibility, market demand, revenue stability, operating costs, debt structure, management team, and other relevant information, before deciding on whether or not to provide financing.
  4. Market conditions: The availability of financing is dependent on market conditions. During an economic downturn or recession, lenders are more risk-averse and less likely to lend to borrowers, resulting in a lack of financing options.
  5. Collateral: Lenders typically require collateral to secure financing, and the availability and quality of collateral can significantly impact the ability to secure financing. If the collateral is inadequate or of low quality, it can make it challenging to secure financing.
  6. Regulatory constraints: Regulatory constraints such as Basel III, Dodd-Frank, and other regulatory reforms have made it more difficult for banks to lend to certain projects, resulting in a lack of financing options. 

 ALTERNATIVE CAPITAL MARKET LENDERS FOR PROJECT FINANCING:

  1. Private debt funds: Private debt funds are an alternative source of financing that can provide project owners and borrowers with flexible and customized financing options. These funds are typically less regulated than traditional banks and can offer competitive interest rates and terms.
  2. Mezzanine lenders: Mezzanine lenders provide a hybrid form of financing that combines debt and equity financing. This type of financing is typically used for projects that are too risky for traditional bank financing but not risky enough for equity financing.
  3. Crowdfunding: Crowdfunding is a form of alternative financing that involves raising funds from many investors through an online platform. This type of financing can be used for smaller projects and provide project owners and borrowers with access to a broad range of potential investors.
  4. Project bonds: Project bonds are debt instruments issued to finance specific projects. These bonds can be issued by project sponsors, governments, or other entities and can provide long-term financing for projects.
  5. Sovereign wealth funds: Sovereign wealth funds are government-owned investment funds that invest in a wide range of assets, including infrastructure projects. These funds can provide project owners and borrowers access to large amounts of capital and long-term financing.
  6. Private Financial Institution: Private Financial Institution is not traditional banks, and they are typically the private direct lender and private investors with their own funds. They can provide competitive rates and longer terms and offers various project financing programs.
  7. Single or Multifamily Family Offices: Single and multifamily offices are typically private wealth management firms that manage the financial affairs of high-net-worth individuals or families. While they may provide a wide range of financial services, including investment management and tax planning, project financing is not typically a core service offered by these firms. Project financing involves large-scale financing of infrastructure, energy, or other capital-intensive projects, often through a complex network of investors, lenders, and other stakeholders. Project financing typically requires specialized expertise and resources that may not be available within a single or multifamily office. However, high-net-worth individuals or families may invest in project financing opportunities through their single or multifamily offices as part of a diversified investment portfolio. In such cases, the office may work with outside consultants or advisors to evaluate the risks and potential returns of the investment opportunity and make recommendations to their clients.

CONCLUSION:

Securing project financing can be challenging, but there are alternative capital market lenders that can provide project owners and borrowers with flexible and customized financing options. Private debt funds, mezzanine lenders, crowdfunding, project bonds, sovereign wealth funds, private financial institutions, and single or multifamily offices are alternative financing options for project owners and borrowers. By exploring these alternative financing options, project owners and borrowers can increase their chances of securing financing and completing their projects.