All About Project Finance

We live in a rapidly changing world where various aspects of our lives, our countries and our economies are changing at a very fast rate. The main element that acts as a fuel for this change is 'money'; all our decisions as human beings are more or less centered around money. In order to upgrade the standard of living in a country, major changes in infrastructure, communication, roads, industries, employment opportunities etc. are needed, and for all these to happen, financing is required.
This financing of various projects, whether in public sector or private sector, is known as project finance; it is the basis of a modern day financial model which is followed by Governments as well as private MNCs. Thus, it is very important for the economic growth of a nation and so it is a subject which is taught in most of the renowned colleges and universities around the world.
Project Finance in Public Sector:
When governments of various developing countries need money to start a new project, they approach the World Bank or other developed countries (mainly US, EU, China) for loans. The loans are utilized to build infrastructure, roads and educational institutions. The borrowed money is then repaid by the governments with the help of the revenue, which is generated out of such institutions, like taxes and fees etc.
In Private Sector:
When private companies need money to start a new venture, they borrow the required money from governments, banks, investors and other financial institutions. Another way of acquiring finance for projects is getting capital from the stock market selling stocks of the company.
Loan Sanctioning Process:
The decision of approval of a loan (to a Govt. or a Pvt. Company) depends of certain factors:

1. Risk evaluation: The lender will evaluate the risks involved with the plan which could be social, economical, environmental or financial.
2. Information Gathering: Information about every aspect of the plan is collected and scrutinized. For example, if a company applies for a loan to start a new soft drink plant, details like location of the plant, available resources, socio-economic situation of the place etc are all researched before the loan is approved.
3. Feasibility Study: It is a study conducted to check if a particular project is feasible in the long run.

Thus, project finance is a vital process which will determine whether a particular project will be able to acquire the required finance for it to start and operate.