For business owner, getting business loan fund for project is always very important and stressful too. This is because different lenders have different expectations on the borrowers.
Sources of business loan fund
In general, project owner can raise money with a few ways :
- Project equity loans
- Non-recourse loans
- Project investors project funding
- Stock loans
Project equity loans
As the name implies, the project equity loan usually to fund large project in the size of 100 millions – 5 Billions.
This type of business loan fund is interest bearing in the range of 2-5% per year. Lender together with borrower will form a Special Purchase Vehicle (SPV) company to disburse the project loan. Project owner will also assign business equity, usually in the range of 30% – 45% to the lender for the whole loan tenure.
This is usually a recourse loan where the borrowers are personally liable for repaying any outstanding balance on the loan, in addition to the collateral itself.
Above all, if the collateral in securing a loan is insufficient to cover the total amount owed on the loan during liquidation, then “recourse” enables the lender to go after the borrowers personally to cover this deficiency.
In order to safeguard the loan money, most lenders will make it compulsory for the borrower to subscribe to financial guarantee insurance. This insurance policy will provide financial protection to lenders to claim for compensation in the event that borrowers defaulted the payments.
A non-recourse loan is defined as a loan where the borrower or guarantors are not personally liable for repaying any outstanding balance on the loan. Non-recourse financing is typically found on longer term permanent commercial real estate loans placed on a stabilized and performing asset, where the collateral is the asset itself.
Another option of non-recourse loans are by monetizing a bank instrument such as SBLC/BG . Since SBLC is a collateral against which a credit line can be availed, a borrower leases a SBLC then he/she will get a discounting facility in his/her own bank and provides a loan against it.
Private Investors Project Funding
Investors who has funds owned by foundations or legacy companies may provide private investors project funding.
Most of this type of private investors project funding are done via a financial partnership agreement with collaboration to enter a development project.
Once the agreement are endorsed by both the lender and the borrower, lender will transfer via SWIFT MT103/202 covered payments.
SWIFT MT103/202 covered payments are the most common and effective fund movement from the lender bank account to the beneficiary borrower bank account.
For borrowers who hold a large portfolio of shares can use stocks as collateral to take loans. This is sometimes referred to securities lending program.
With stock loans, holders can take out a non-recourse loan of about 50% loan to value(LTV) of the total value of all stocks combined. This means their stock is the only collateral and if the borrower defaults, they will not lose their personal possessions.
Each stock loan has its own unique terms. Usually interest charge of 3 to 5%/year and/or loan origination charges (about 4 to 6% of the loan proceeds).
Most stock borrowers take out loans for three years, typically borrowing $1,000,000 to $5,000,000.