Project finance is a way for businesspeople to generate cash flow for their projects by taking out non-recourse loans. In other words, they acquire cash by taking out loans that will be repaid with the money generated by a project. From an entrepreneur's perspective, one of the most important tips for project finance analysis is to make sure to create a detailed budget and to perform the necessary amount of risk management. Lenders, on the other hand, should perform project finance analysis by ensuring that potential borrowers have created a sure way to generate profits and that all risks have been taken into account.
As in any kind of analysis, performing project finance analysis requires individuals to have an understanding of how similar projects have been conducted and how they turned out. For example, if a project includes building up a commercial center where many other professionals have tried to put up commercial buildings in the past, a professional should find out why those projects failed to progress. If there have been repeated problems with the location, a new project should not be pursued until such issues have been properly addressed.
It is also important to include a business plan in project finance analysis. Each side of a deal has something to gain from an effective management and process model. For this reason, all parties should make sure that models are clear, realistic, and accurately tested. While processes and management models might change as a project progresses, all parties should understand nevertheless that plans should prepare a business for all potential risk factors.
For many lenders, finding financial insurance or credit support is another important aspect of project finance analysis. Even when risk has been analyzed and planned for, lenders should be prepared for worst case scenarios. The better prepared for risk a project is, the easier it can be to find credit support or insurance.
Lenders also should consider a company's history when performing project finance analysis. For example, if a company needs funding to sell products that it has been selling for many years, lenders might see funding this project as being a safe and profitable investment. A new business, however, run by an individual who still does not understand general practices, might be less appealing for a lender.
Competitor behaviors also should be taken into consideration when performing project finance analysis. It can be a good idea to see how other businesses in a similar market are faring. This data can help you to see potential for growth or evidence of a saturated market.