Avoidable Mistakes in Project Finance

Project financing documents will have many objectives but focus should always be placed initially on presenting a clear picture of the project, how funds will be allocated, and how interest and principle will be returned to investors. Mistakes made during this process can either delay funding or negate it altogether. Fortunately, many of these common mistakes can easily be avoided by prioritizing simplicity and common sense.

These avoidable mistakes include:

  • Calculations that do not clearly define assumptions – This is a common issue in financial presentations that can be avoided by keeping formulas with all hard numbers separate from those in which assumptions are incorporated, followed by a clear definition of each category.
  • Using formulas that only a math doctorate can follow – While it’s a given that a certain level of complexity will exist in any project, keeping things as simple as possible can eliminate lenders’ concerns that there are big issues hidden inside calculations that they can’t understand.
  • Basing the presentation on rosy forecasts – There is often a high degree of enthusiasm behind a new project but putting forth a presentation that focuses only on the positives will have lenders looking for the door. Instead, present an even-handed summary in which both risks and rewards are defined.
  • Omitting risk analysis/mitigation for the project – Funding for a project will not occur without a thorough assessment of project risks and the planned responses should risk events materialize. This analysis should also prioritize project risks and list the resources that will be dedicated to the mitigation of specific risks.
  • Presenting a proposal that is not an executive summary – A three to five page executive summary allows for a prospective lender/investor to get a feel for a project within a few minutes rather than the hours it could take to sort through a full prospectus-type document. Without an accompanying executive summary, a prospectus can sit at the bottom of an inbox indefinitely.

In project financing, keeping things as simple as possible most often wins the race.  As executed by the team led by Dmitrij Harder at Solvo Group, presenting a clear picture while avoiding the mistakes listed above can build interest quickly and get projects funded.

 

 

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