Investment lending for large-scale projects
An investment lending is a type of?loan?provided to a business to finance new capital-intensive projects.
As a rule, these are significant investments.
To gain access to investment lending, the recipient’s own contribution is usually required, which in most cases amounts to 20–30% of the total project cost. Some financial institutions cover up to 90–100% of the?investment cost?of the project.
Center Parcs UK FINANCE provides financing for large projects with the initiator’s own contribution of up to 90%.
The loan can be provided both for a newly established company and for companies that have been on the market for many years.
In most cases, European banks recognize a company as reliable if it has worked on the market for at least 6 months.
Provided financing can be short-term (up to 1 year), medium-term (1–3 years) and long-term (up to 20 years).
An investment lending can only be used for investment purposes, including the following expenses:
? Property that will be owned by the company. ? Special equipment and machines used for production. ? Copyright, patents, licenses and know-how. ? Securities.
The main goals that can be achieved using investment lending are classified by economists into three main groups:
? Material investments such as the purchase of real estate, company cars, machine tools or special equipment needed to grow the business.
? Intangible and legal investments, including the acquisition of copyrights, trademarks, patents, know-how, licenses, which are necessary for the functioning of the company.
? Financing. For example, buying long-term securities, including shares of other companies.
A distinctive feature of investment lending is that they are issued to fulfill clearly defined plans.
Any entrepreneur can apply for an investment lending if he has a good credit history and is ready to invest his own funds, at least 10% of the planned investment.
A well-prepared business plan is a prerequisite for obtaining a?loan.
The loan amount depends on many factors, which are considered individually. Both the needs of the enterprise and its financial condition are taken into account. The bank can offer a one-time disbursement of the entire requested amount, as well as its payment in tranches.
The latter solution is especially suitable for projects implemented in several stages (for example, construction or modernization of a production hall).
Large investment lending: how to get it
Our clients are often interested in the conditions that an entrepreneur must fulfill in order to obtain an investment loan.
Companies wishing to develop large projects in the energy, oil and gas sector, infrastructure or agriculture often apply for investment loans. Not all applicants can count on a positive decision from the bank. Below we will indicate what requirements the company must meet.
A business owner wishing to access bank investment lending must meet the following requirements:
? High creditworthiness, which depends on the requested loan amount requested by the company from the financial institution.
? Flawless credit history, which can be verified through the credit bureau in your country.
? Availability of certain assets to make your own initial contribution in the amount of 10% of the cost of the project. This percentage also depends on the risk that the bank faces in case of investment failure.
? A promising investment project, which is supported by a reliable business plan. The entrepreneur must provide documents confirming the feasibility and financial efficiency of the future project.
To obtain an investment bank loan, you must submit the relevant documents and applications to the selected bank.
Their number and list may differ depending on the institution.
To increase the chance of a positive decision of the bank, it is necessary to carefully prepare a business plan for this project. It is also necessary to prepare documents that reflect the financial health of the company.
When deciding on lending to a business, the bank analyzes the planned project in terms of the chance of success and the possibility of making a profit. The current economic situation is also taken into account.
It makes sense to publish detailed financial analysis and forecasts.
The bank may refuse to issue a loan if it considers that the project was planned inaccurately and the risk is too high.
Advantages and disadvantages of investment loan
Not every company has financial resources that will cover the cost of an investment project.
Lack of free financial resources usually means abandoning many projects that could positively affect the development of the company and, thus, increase its income.
With financial support from large banks, you will be able to carry out further investment projects necessary in an era of growing competition. Companies must invest in new products, new technologies, new industries, better equipment. Investing in development ensures the maintenance of a competitive position in the market and growth of the business.
Investment lending for large-scale projects allow adjustment of financing in accordance with the borrower’s project’s cash flows.
Flexible conditions to a certain extent prevent problems with the company’s financial liquidity caused by the implementation of capital-intensive projects.
Thanks to the competent combination of?borrowed funds?from several sources, even large and expensive projects do not significantly worsen the financial health of the company.
An?investment loan?is usually provided for a long term.
However, remember that this period does not exceed the depreciation period of the fixed assets that make up the investee (for example, purchased cars, equipment or real estate).
Advantages:
Investment lending for many companies is the only solution to ensure business growth.
The most important advantage of an investment loan is a large amount of financing.
It happens that banks do not set an upper limit on the loan amount.
The financing provided can be the key to success for a young company, giving the business a huge competitive advantage and becoming the driving force behind its development.
The long term of the loan allows the borrower to tailor financing to a specific project.
Early repayment of the loan is possible, as well as periodic grace periods for debt repayment.
To obtain a loan for the implementation of large investment projects, it is necessary to provide a business plan and financial indicators of the company, including current revenue and projected profit. Banks carefully analyze all applications and check the chances of success of a particular project.
Investment loans are provided only to companies that, according to the bank, are considered reliable and have good prospects for the future.
Receiving such financing is a kind of confirmation of the high potential of the business.
Despite the seeming complexity and laboriousness, investment lending today has become a popular solution for many companies.
Disadvantages:
Like any other financial product, an investment loan for the development of large projects has some drawbacks.
The biggest drawback is by far the very difficult access for new companies.
For a company to be trusted by the bank, it must successfully operate on the market for at least 6–12 months. Therefore, it is often possible to attract project financing for new companies only through alternative financial instruments.
Another drawback is the relatively long processing time of the application, which is preceded by the collection of a significant amount of documentation about the company and its activities. Some companies for which interest rate risk is important may also view variable interest rates as a disadvantage.
Another problem may be the need for an initiator’s contribution and collateral.
Bank loans for large investments
The participation of banks in the investment process involves the mobilization of funds for investment purposes, the issuance of large loans, investment in securities and equity participation.
Bank investment loans have sufficient profitability with high risks.
So, investment bank lending is a long-term service available to customers who have promising ideas for improving or opening a new direction in their business.
Principles for providing bank investment loans:
? A clear delineation of functions and responsibilities between the credit and investment structural divisions of the bank, which should help to optimize the relationship between the bank and clients in the investment area.
? Optimization of the investment lending procedure, which makes it possible to improve the process of granting and repaying an investment loan in accordance with specific phases of the life cycle of an investment project.
? Unification of the procedure for obtaining an investment loan in all large commercial banks with the creation of a number of clear criteria that determine the terms of lending.
? Priority of innovative projects due to the need for continuous technical development and business modernization.
? Analysis of the creditworthiness of borrowers, as well as forecasting the characteristics of future cash inflows in the long term.
? The effectiveness of investment lending mechanisms for the bank and borrowers, contributing to the balance of interests of the parties to the loan agreement for the successful implementation of the investment project.
? Applying a proper procedure for granting investment loans in accordance with international guidelines.
Implementation of these principles of bank investment lending for large-scale projects provides a favorable environment for managing credit risk.
If you are interested in Investment lending for large-scale projects for large projects, contact CENTER PARCS UK FINANCE.
We offer financing on the most favorable terms with an initiator’s contribution of up to 10%.
Securing investment loans
A characteristic feature of investment lending is that the loan cannot be blank (unsecured).
Consequently, banks will always use some form of securing investment loans, such as bank guarantees or collateral.
The main ways to secure investment loans are listed below:
? Collateral. Most often, the loan is secured by liquid assets owned by the borrower’s company, SPV or third parties. In cases of project finance, project assets can be used as collateral (for example, a facility under construction, equipment, materials, etc.)
? The guarantee can be used in various forms. Firstly, a payment guarantee is an unconditional obligation to transfer certain funds to the bank in case the borrower violates the terms of the agreement or other guarantee events. Secondly, it can be a project completion guarantee containing the sponsors’ obligation to continue the implementation of investment plans in certain circumstances. Thirdly, it may be an additional guarantee in the form of a bank deposit of the sponsor or the companies implementing the project.
? Assignment (cession) of claims and accounts to a third party in favor of the bank.
? Insurance agreement and other options.
The cost of an investment loan collateral for large projects may vary, but in general its ratio to a loan is set at 2:1.
The asset provided by the borrower as collateral must be highly liquid, suitable for long-term storage, and easily accessible for control.
Cultural property, charitable organization assets and certain other objects (as defined by the legislation of the host country) cannot be loan collateral.
Contact us to learn more about the services of CENTER PARCS UK Finance.
CENTER PARCS UK FINANCE LIMITED
Website:https://centerparcs-uk.com/
E-mail:[email protected]
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