Key business consideration relevant for Project Financing Decision
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.
Often the hardest part of starting a business is raising the money to get going. An entrepreneur might have a great business idea and a clear plan for how to exploit a market opportunity. However, unless sufficient finance can be raised, the entrepreneur will struggle to make the most of the opportunity. Raising finance for a start-up requires careful planning. The objective of financial decision is to maintain an optimum capital structure, i.e. a proper mix of debt and equity, to ensure the trade-off between the risk and return to the shareholders. Key considerations in making investment decisions are –
- How much finance is required?
- When and for how long the finance is needed?
- What is the scale of the investment – can the company afford it?
- How long will it be before the investment starts to yield returns?
- How long will it take to pay back the investment?
- What are the expected profits from the Investment?
- Could the money that is being plowed into the investment yield higher returns elsewhere?