The traditional corporate financing takes the project sponsor as the financing subject. Whether banks or other fund providers lend or invest to the company depends on whether the company has good economic benefits on the one hand and the overall credit status of the company on the other. Because corporate financing should not only use the company's future income to repay the loan, but also take other assets of the company as a guarantee. The financing subject of project financing is the project company itself. Whether the bank or other fund providers can invest the funds on schedule depends entirely on the future income of the project, and the right of recourse is limited to the future income of the project and the assets after the project is completed.
Second, the financing basis is different.
In project financing, whether the lender can give the project loan mainly depends on the economic strength of the project and how much cash flow the project can generate for repayment during the loan period. The loan amount, interest rate and financing structure arrangement depend entirely on the economic benefits of the project itself. Traditional financing mainly depends on the credit of investors or sponsors.
Third, the degree of recourse is different.
Project financing belongs to limited recourse or no recourse. Lenders can pursue the project borrowers at a certain stage or within a specific scope. In addition, no matter what happens to the project, the lender cannot recover any property of the borrower except the assets, cash flow and debts of the project. The traditional financing method belongs to the right of complete recourse. The borrower must use his own assets as collateral. If the project fails and the project is insufficient to repay the principal and interest, the lender has the right to auction the borrower's other assets as collateral until the loan principal and interest are paid off.
Fourth, risk sharing is different.
Projects that adopt project financing are large-scale projects, with huge investment, long construction period and many stakeholders, which often attract foreign investment. Therefore, its risks include credit risk, completion risk, production risk, market risk, financial risk, political risk, legal risk, force majeure risk, environmental risk and national risk. Stakeholders can share responsibilities and risks reasonably according to the interests of all parties through strict legal contracts, thus ensuring the smooth implementation of project financing. The risks of traditional financing projects are often concentrated on investors, lenders and guarantors, and the risks are relatively concentrated and difficult to share.
Verb (abbreviation for verb) Different debt ratios.
Project financing allows the project sponsors to invest less equity and carry out a higher proportion of liabilities, while the investor's equity investment ratio is not high, and more than 90% of liabilities can be realized. Under the traditional financing method, the debt ratio is generally required to be between 40% and 60%, and the investor's free capital ratio must reach at least 40% before financing can be carried out.
Six, accounting treatment is different
Project financing is off-balance sheet financing, and the debt of the project does not appear on the balance sheet of the project investor. In the traditional corporate financing, the project debt is a part of the investor's debt and appears on the investor's balance sheet.
7. Different financing costs
Compared with traditional financing, the cost of project financing is higher, which is mainly due to the huge workload in the early stage of project financing and the limited nature of recourse. The cost of project financing includes the upfront cost and interest cost of financing.
Generally speaking, the essential differences between project financing and enterprise financing include different financing subjects and foundations, different recourse characteristics, different repayment sources and different guarantee structures. In addition, the accounting treatment of project financing is very different from enterprise financing, and its financing debt will not appear on the balance sheet of project investors, so the project financing cost is high. On the contrary, the enterprise financing cost is low.