Project financing fees and costs
Project finance payments.
In the world of project finance, many entrepreneurs refuse to pay “upfront fees” for their project. When applying for debt financing, the funder may have to put in place a financial structure that allows you to get a project off the ground and also determine your ability to repay the loan. While it is true that you may not have to pay upfront fees, there are often associated costs involved.
Cost of V rates:
A fee is when you are asked to pay for the services of the providers, either by arranging the financing package through the intermediary or a fee charged by the funder itself. This fee is normally collected at the end of the financing procedure.
A cost is something that cannot be avoided. The money goes to actual events, such as buying a banking instrument on your behalf, locking funds within a hedge fund, obtaining private equity funds. All of these incur costs.
What is included in the cost?
Costs can include a variety of things, like securing a warranty. Let’s say you have a project that is NOT guaranteed and still does not generate income. Generally, financers / lenders protect borrowed money by securing it against some type of collateral. As a project that is in its early stages, they will not have any guarantees. It is quite common for funders to seek external guarantees by purchasing instruments to guarantee the project.
Often this means that another corporate entity pledges its assets against the instrument for 1 year and 1 day. You now have two parties at risk, the corporation that pledges its assets against the instrument and the financier that buys the instrument to lend against it; this incurs costs. Other costs may include 1) due diligence 2) paying for flights for face-to-face meetings, 3) locking money within a hedge fund, 4) securing funds from private equity investors – all of these incur very real costs. Not to say that all companies have these costs.
Payments and commissions
Obtaining financing for projects can be quite ruthless. Please read their agreements and terms carefully when applying to brokers or lenders as some companies have been known to charge ridiculous sign-up fees, holds, Skype call fees, and an exit fee. All of this can be legitimate, however there are sponsors who are only looking to collect fees and very rarely provide funding results. I heard that some businesses are charging 20K just for the registration fee and exit fees can be expensive, making it difficult for businesses to go elsewhere if they haven’t received funding within 12 months.