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Project Loan

Project Loans

Corporate Loan

Project Financing is a long-term, zero or limited recourse financing solution that is available to a borrower against the rights, assets, and interests related to the concerned project. If you are planning to start an industrial, infrastructure, or public services project and need funds for the same, Project Financing might be the answer that you are looking for.

The repayment of this loan can be done using the cash flow generated once the project is complete instead of the balance sheets of the sponsors. In case the borrower fails to comply with the terms of the loan, the lender is entitled to take control of the project. Additionally, financial companies can earn better margins if a company avails this scheme while partially shifting the associated project risks. Therefore, this type loan scheme is highly favoured by sponsors, companies, and lenders alike.

What Are the Various Stages of Project Financing?

Pre-Financing Stage
Identification of the Project Plan

This process includes identifying the strategic plan of the project and analysing whether it’s plausible or not. In order to ensure that the project plan is in line with the goals of the financial services company, it is crucial for the lender to perform this step.

Recognising and Minimising the Risk

Risk management is one of the key steps that should be focused on before the project financing venture begins. Before investing, the lender has every right to check if the project has enough available resources to avoid any future risks.

Checking Project Feasibility

Risk management is one of the key steps that should be focused on before the project financing venture begins. Before investing, the lender has every right to check if the project has enough available resources to avoid any future risks.

Financing Stage Being the most crucial part of Project Financing, this step is further sub-categorised into the following
Arrangement of Finances

In order to take care of the finances related to the project, the sponsor needs to acquire equity or loan from a financial services organisation whose goals are aligned to that of the project.

Loan or Equity Negotiation

During this step, the borrower and lender negotiate the loan amount and come to a unanimous decision regarding the same.

Payment

Once the loan documentation is done, the borrower receives the funds as agreed previously to carry out the operations of the project.

Post Financing Stage
Timely Project Monitoring

As the project commences, it is the job of the project manager to monitor the project at regular intervals.

Project Closure

This step signifies the end of the project.

Loan Repayment

After the project has ended, it is imperative to keep track of the cash flow from its operations as these funds will be, then, utilised to repay the loan taken to finance the project.

Key Features of Project Financing

Since a project deals with huge amount funds, it is important that you learn about this structured financial scheme. Below mentioned are the key features of Project Financing:

Capital Intensive Financing Scheme

Risk Allocation

Multiple Participants Applicable

Asset Ownership is decided at the Completion of Project

Zero or Limited Recourse Financing Solution

Loan Repayment With Project Cash Flow

Better Tax Treatment

Sponsor Credit Has No Impact on Project

Under project loan there are several loans: >Land Purchase and Construction & Infrastructure Loan


  • Residential and commercial conversion can be funded. Agricultural land in green or orange belt can't be funded.
  • The plot must be independent or in a gated community.
  • The geographic location of the property matters to the lenders. So check with the lender before you apply for the loan.
  • The loan to value ratio lower.
  • The loan tenure is restricted to 15 - 20 years.
  • The rate of interest might be slightly higher when compared to a home loan.
  • While taking the loan make sure that there is no condition to start the house construction within a certain period.
  • The property bought with the loan for land purchase is for investment and not with the intention to sell.
  • This is a riskier investment as it may attract a lot of litigation at the end of the day.
  • The land can be however mortgaged in the later stage to meet your financial requirement.

Land Purchase and Construction & Infrastructure Loan

Land Loan Interest Rates

The rate of interest in case of a loan to purchase land and home loans are similar. However, some banks offer a couple of basis points higher rates for loans for land purchase than of home loans. Banks provide a stipulated time for construction over the plot. Therefore, the bank mandates that borrowers provide a construction certificate. If the borrower doesn’t make construction over the plot within the amount from the date of the first disbursement, land loan interest rates structure for the borrower changes from a home loan to a loan against property.

Loan to Value Ratio

Loan to value or LTV means the quantity of loan which a borrower will get against his property. LTV, in case of loan for land purchase with construction, is significantly lower. Furthermore, the loan-to-value ratio (LTV) will be capped at a maximum of 70% of the land value. In the case of home loans, LTV ranges between 75% to 90%.

Lower Tenure

Land loans have relatively a shorter tenure of up to fifteen years, which isn’t the case in home loans, which is accompanied by an extended tenure of 30 years. Therefore, the EMI within the case of a loan for plot purchase is above that of normal home loans. The tenure for a land loan also depends on the age of the borrower, repayment capacity, etc.

Tax Benefits

Home loans qualify for a tax deduction on payment of the principal amount under Section 80C of the income tax Act also as the interest component under Section 24(b) of the income tax Act. On the other hand, tax benefits toward land loans aren’t available. However, borrowers could claim a tax deduction on loan if the home is constructed on a plot purchased by the borrower. A borrower can claim a tax deduction against the loan amount taken for construction, after the completion of construction on the plot.

Prepayment Penalty

Floating rate loans sanctioned to individual borrowers are free from the prepayment penalty if a borrower wants to foreclose the loan. However, a land loan sort of a home loan could attract prepayment charges of two to 4% of the prepaid amount if the non-individual borrower has taken it. A borrower should read the loan agreement carefully and clarify the foreclosure charges of the loan before signing the agreement.
Requirement

Required Document

Information

  • Pan Card
  • Aadhar Card
  • Salary Slip - Last 3 Month
  • Form 16 - Last 3 Year
  • ITR - Last 3 Year

Information

  • Appointment Letter & Offer Letter
  • Company ID Card
  • Salary Slip - Last 3 Month
  • Photos 5
  • Property Chain

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