Business

Project financing fees and costs

Project Financing Payments.

In the world of project finance, many entrepreneurs refuse to pay “upfront fees” for their project. When you apply for debt financing, the financier may need to put in place a financial structure that allows you to start a project and also determine his ability to repay the loan. While it’s true that you may not have to pay a fee up front, there are often associated costs involved.

Fees Cost of V:

A fee is when you are asked to pay for the providers services, either by arranging the financing package through the broker or a fee charged by the financer itself. This fee is normally charged at the end of the financing procedure.

A cost is something that cannot be avoided. The money goes towards real events, such as buying a bank instrument on your behalf, locking funds inside a hedge fund, raising money from private equity. All of this incurs costs.

What is included in the cost?

Costs can include a variety of things, like getting warranties. Let’s say you have a project that does NOT have a guarantee and still does not generate any income. In general, financiers/lenders protect the borrowed money by insuring it against some form of collateral. As a project that is in its early stages, they will not have any guarantees. It is quite common that the financiers have to go and obtain external guarantees through the purchase of instruments to guarantee the project.

This often involves another corporate entity committing its assets against the instrument for 1 year and 1 day. You now have two parties at risk, the corporation pledging its assets against the security and the financier who buys the security to lend against it; this incurs costs. Other costs may include 1) due diligence, 2) paying for flights for face-to-face meetings, 3) locking money inside a hedge fund, 4) securing funds from private equity investors, all of which incur very real costs. It does not mean that all companies have these costs.

Payments and Commission

Getting funding for a project can be pretty ruthless. Read their agreements and terms carefully when applying with brokers or lenders, as some companies have been known to charge ridiculous registration fees, retainers, Skype call fees, and an exit fee. All of this may be legitimate, however, there are those funders who are just looking to collect fees and very rarely get funding results. I heard some companies are charging 20K just for the registration fee and exit fees can be expensive making it difficult for companies to go elsewhere if they haven’t received funding within 12 months.

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