What is project financing? What are its advantages and disadvantages?MBA level© BrainMass Inc. brainmass.com June 4, 2020, 12:25 am ad1c9bdddf
The general understanding of project financing is to commit money to earn a financial return or profit. This is capital outlay. Capital outlays should generate future benefits or advantages if properly planed. It is the use of available capital to provide future benefits. Federal income tax may play a part in the investment decision; thus, after-tax return is relevant. In this case since the "project" was not specified and it is the assumption that it is a commercial property.
When financing you are basically using a bank's money or some other parties money in order to leverage what you can accomplish. For example in the current market - generally you will need to contribute at least 30% or more equity before a traditional lender will agree to fund the remaining 70%. By doing this you are taking on debt - and also risk if the property does not generate enough cash flow to cover the payments. ...
The advantages and disadvantages of project financing are examined.