Various means of Financing a Project

Various means of Financing a Project

The financing of long-term infrastructure, industrial projects and public services based upon a non-recourse or limited recourse financial structure where project debt and equity used to finance the project are paid back from the cash flow generated by the project. Following are the means that an organization can use for financing a project:

(1) Share capital: Share capital is the fund raised by issuing shares in return for cash on other considerations. Also known as “equity financing”. The amount of share capital a company has can change over time because each time a business sells new shares to the public in exchange for cash, the amount of share capital will increase. Share capital can be composed of both –

  • Common share and,
  • Preferred shares.

(2) Term loan: It is a loan from a bank for o specific amount that has a specified repayment schedule and a floating interest rate. Term loans almost always mature between one and 10 years but it is a costly one for financing.

(3) Bond: A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities.

Bonds are commonly referred to as fixed-income securities and are one of the three main asset classes along with stocks and cash equivalents.

(4) Debenture capital: A type of debt instrument that is not secured by physical assets or collateral Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond in order to secure capital. Like other types of bonds, debentures arc documented in an indenture

(5) Deferred credit: Income that is received by a business but not immediately reported as income is known as deferred credit. Typically, this is done on income that is not fully earned and. consequently, has yet to be matched with a related expense. Such items include consulting fees, subscription lees tend any other revenue stream that is intricately tied to future promises. For example, a book club might defer income from a two-year membership plan until all the costs of procurement and shipping arc assessed. Also known as deferred revenue or deferred income.

(6) Other sources:

  • Personal loan,
  • Unsecured loan,
  • Public deposit,
  • Leasing, etc.

These are the ways an organization can collect the funds and finance for a given project.