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Your Project Funding Guide
Traditional Bank Loans
Since the weakening of the world economy back in 2008, banks aren't lending like they used to. As a consequence, borrowing criteria has become stricter resulting in difficulty getting funded from mainstream banks.
Start up businesses often have little to no money coupled with very little collateral to offer banks due to their high loan rates and tight lending terms. However, there are other alternative funding solutions out there instead of using mainstream banks if you know where to look?
Other Sources Of Funding
If you require a large business loan, mainstream business banking might not be flexible enough for your needs. There are other funding sources you can use to help raise the capital you need. Each funding source will have their own specific terms and rates, some are more flexible than others. If you have problems getting the funding for your project, it's possible to look at service providers who work alongside funding companies.
The funders listed below can do structured debt finance for viable projects over $10 Million USD and may offer equity funding as another funding option. Your project requirements will determine which funder is best suited to your project.
- Hedge Funds
- Private Equity
- Joint Ventures
- Venture Capital
- Private Investors
- Investment Boutique Banks
- Corporate Backers
The image below demonstrates the differences between getting a bank loan and alternative finance.
Traditional Bank Loans v's Alternative Funding
Concept or Prototype
Seed / Shovel Ready For Development Projects
Wealth Manager / Corporate Funds
Existance of a Project or Trial Company
Growth / Expansion Capital
Investment Bank / Growth Fund
Project Funding Industry Sectors
It is possible to get structured funding for complex, large-scale global projects across a variety of industry sectors. Many funders today are focusing on renewable energy projects as there is a desperate need to combat climate change. As well as renewable energy, they will often focus on other sectors which can include:
Commercial Property Projects
- Commercial Property (Warehouse, Factory, Office Building, Shopping Centres
- Residential Development (homes, townhouses, condos, apartments)
- Oil & Gas
- Biofuel / Biomass
- Solar Energy
- Wind Energy
- Geothermal Energy
- Waste to Energy
- Transport Links
Mining for precious metals
Healthcare and medical
Technology and Communications
Business Plan Secrets
How To Apply For Project Funding
After submitting your project proposal, the project funding process is straightforward. Intermediaries should do a preliminary check to analyse and assess the business documents (business plan, executive summary and financials) and look for any discrepancies.
They will also arrange phone calls with you to go through the explanation of your project to ascertain if the project meets the funding criteria. Also by keeping in contact, it will allow them to discuss any questions they have relating to your project which enables them to select which funder is most suitable.
Why Use An Intermediary Service?
There are "pros and cons" going through intermediaries for project finance. Intermediary businesses usually work closely with project principles and source a select group of trusted and reputable lenders suitable to the projects requirements. Often they have built up a relationship with the funders over time. In some instances intermediaries will do such a good job of 'vetting' projects that funders will grow to welcome projects from that particular intermediary as they know that the project will be of good quality.
- They arrange suitable lenders for your project regulated and non regulated markets
- understand lenders terms so will help you gain knowledge on their requirements
- be selective as they are an independent body so finding the best rates/costs for your business is easy
- get better approval rate because your project is understood
- money isn't handled. You will be asked to put money in an escrow account
- Fees are added but can be built within your project costs from the lender
- Non regulation, Intermediaries are not giving financial advice
- If an intermediary is not direct to a lender, the service can run deep through a daisy chain of intermediaries which in turn each will expect to be remunerated which adds to the fees
Project Funding Guide - Section 1
The image shown above is a step by step process of the project funding requirements and procedure. Let's look at the 3 sections in more detail.
Financials and Preparations
This is a list of documents that might asked for to get your project funded. When submitting your project to a broker or lender, provide as much relevant information pertaining to your project as you possibly can.
Business plans should be at least 10 pages long for start up businesses. It should be very informative providing the lender a complete picture of your business which should include; maps, images, graphs and charts. Here are some main points to consider in a business plan
- Indepth report of the project
- Resume of principles / developers / team players
- Proto types / licenses / agreements
- Tested market / buyer readiness / SWOT analysis
The executive summary is an outline of your project which highlights the important details of the business plan.
Whether you need start up funding or finance to help expand your project, it's important that your financial statements are realistic and reflects true expense of operational costs.
- Balance Sheet
- Appraisal Report (if applicable) This must be certified by a qualified appraiser
- Feasibility Study
- Breakdown of Funds already invested in the project
- Detail Use of Funds
- Expected Growth (if it's a startup company)
Application For Funding
After submitting your project for funding do expect that the potential funder or facilitator may ask further questions by way of perhaps filling out a questionnaire. Some facilitators will try to gather as much information as possible to present to the funder so as to increase your chances of getting funded.
Just looking at a business plan and executive summary does not automatically mean that you have provided sufficient amount of information for the funder to make an informed decision as to whether or not to fund your project. Therefore if a facilitator or funder requests for more information by way of asking you to fill out a questionnaire, try not to be offended by such forms. It is merely a 'we need to know more information' exercise.
The forms are normally tailored to gather further information which often may not appear on business plans. As well this information goes a long way towards enabling the funder to do some background checks before issuing term sheets.
For example lets say you go to a bank and ask for a loan. Would you expect to walk away with a loan without filling out ANY forms? This is not a realistic expectation to have. The same applies with project funding, if you are looking to raise millions upon millions and are not prepared to impart further information, this can be seen as a red flag from the funder's perspective.
Funders wish to work with those who co-operate rather than meet resistance right from the beginning. Therefore be prepared to be asked questions further down the line. The more transparent and co-operative you are, the more likely you are to be funded.
Project Funding Guide - Section 2
Brokers will look through your submitted documents to find out which lender is most suited to your projects needs? Once agreed, the "suited" lender will start the steps to get the business funded.
The Contract Process
Know Your Client (KYC) is a form that has to be filled out. It is a standard compliance procedure undertaken by all funders as part of the due diligence process. "KYC" falls inline with the Prevention of Money Laundering Act (2002). Since then, the financial authority put on more regulatory pressure on financial institutions worldwide in the aim of preventing money laundering, financial fraud and other financial misgivings which has resulted in record numbers of fines and investigations.
Funder Due Diligence
The appointed representative of the business should provide detailed information about the team, monitoring transactions and conducting risk management. The lender will conduct full due diligence to make sure that they know whom they are dealing with.The depth in which the lender delve into will vary from funder to funder. When conducting their due diligence the lender may ask for further information. Try to be as transparent as possible and being co-operative works in your favor too. If project principals are reluctant to provide information asked for, this may cause concern and raise red flags for the funder.
Project Funding Guide - Section 3
Once the funder is happy with due diligence and everything checks out, an LOI (letter of interest) or indicative terms sheet is issued. This is not a formal agreement and you can agree to make adjustments until the final document is released along with schedule of staged payments, tranches and draw downs often known as the LSA (loan and security agreement.) It is common that most funders will not lend out the full amount of the loan in one go .
Things To Consider
In order to maximise your chance for funding there are a number of things you can do. It is essential that you explain everything about your project with reasonable estimates in financials. Here are 4 other recommendations before applying for any type of business loan.
4 Top Tips
1) Business Plan - If you are unable to do this yourself, use professional services to draw up your executive summary, business plan and financials. Structuring your business plan the right way is very important to funders.
2) If need be, have your product registered, prototype, trademarked. This will help the funder decide if your project has an intrinsic value.
3) Getting funded with the right terms and rates can mean either success or failure of your project. Do you need a government grant? crowdfunding solutions? loan from a high street bank or alternative finance?
4) Due diligence. You can perform due diligence on companies by asking yourself; Is the company registered? How transparent are they? ASK about fee structure and costs.
Our ultimate recommendation is to use the services of a lawyer. Whilst this can be seen as a costly outlay to a business idea, in the long run it will be worth it.
What is the biggest challenge you face when raising capital for a new or existing project?
© 2016 Denise