Construction finance viola-funding August 24, 2023

Construction finance

Construction financing: how to find a funding source
Construction financing: how to find a funding source

The most capital intensive is the construction of facilities such as hydroelectric power plants, heavy industrial plants, water treatment plants, LNG regasification terminals and mining facilities. Large business projects, be it the construction of a solar power plant or the modernization of wastewater treatment plants, require impeccable organization, professional supervision and construction financing.

According to previous forecasts by Moody’s, the global construction sector could grow to $ 8 trillion by 2030.

How to secure a funding sources?

The first step in any major project is to finance the construction. It is important not only to receive funds, but also to manage them correctly at every stage, from drawings to putting the facility into operation.

When implementing the most ambitious environmental, energy, large industrial and infrastructure projects, you can rely on the professionalism and abilities of Viola Funding Limited

We provide financing and project management, as well as negotiate with banks, investors, subcontractors, suppliers, developers, authorities, etc.

When planning the construction, modernization or expansion of a new facility, we must initially estimate its cost in order to start looking for funding sources. In addition to the purchase of the site, the costs will include obtaining official permits, the development and adaptation of technical documentation, the connection of utilities, the purchase and transportation of construction materials and special equipment, installation and general construction work.

However, the first step in any major project is to finance the construction. It is important not only to receive funds, but also to manage them correctly at every stage, from drawings to putting the facility into operation.

Investment costs for the construction of large industrial or energy facilities can be estimated based on preliminary studies, setting the final cost of the project in the EPC contract.

Viola Funding Limited have successfully completed numerous projects in many countries.

Sources of finance in the construction industry

Experts distinguish between internal funding and external funding.

In the case of equity financing, the resources provided increase the equity capital of the enterprise, and the capital provider becomes the owner or co-owner of the business.

One of the sources of financing for construction is the issue of shares.

External financing of construction is attracted from other sources by issuing shares, obtaining a bank loan, attracting venture capital, etc. This is the most common source of financing for large projects in the energy, industry and infrastructure.

This source of project financing is of little use for small companies that start ambitious projects with the expectation of future financial flows.

Issue of shares: One of the sources of financing for construction is the issue of shares. This allows reaching a wide range of investors, increasing the prestige and brand awareness, and also contributes significantly to increasing financial liquidity.

Shares are securities that give the right to participate in a joint stock company. Each share is a part of the capital of a joint stock company, which serves as proof of joint ownership of its assets.

Preferred shares give priority rights over the holders of ordinary shares in the distribution of profits and in the case of division of assets in the event of liquidation of the company.

Issue of bonds: The bond issue is an attractive alternative to other sources of construction finance, especially for businesses looking for significant capital for development. Unlike shares, which give the right to participate in the assets of a company, a bond is a debt security.

From the moment a bond is issued to the moment of redemption, this security can change its owner many times. Each subsequent bond holder becomes the issuer’s creditor.

Securitization of assets: asset-based provide stable financial flows for the holder.

Leasing to financing a construction industry

The essence of leasing is to give the investor the opportunity to use certain assets (cars, vehicles, devices, real estate and entire businesses) and benefit from them without becoming their owner.

The benefits of leasing to finance construction include:

•Lack of initial investment in construction. • Ability to finance most or all of the costs. • Flexible choice of terms of the deal for the individual needs of the participants. • Reduced overall investment costs as transaction fees may be less significant. • Expansion of credit opportunities. • Tax incentives, etc.

Features of factoring for construction finance

The main subject of factoring is the assignment of receivables, the essence of which is the right to receive cash payment for the delivery, work or performance of the service within a certain period.

There are also additional services related to factoring:

• Debt collection. • Sending reminders to the overdue debtors. • Periodic examination of the financial situation of debtors. • issuance of loans related to the factoring agreement. • Settlement of relations between the parties to the transaction. • Planning the development of the company and so on.

Factoring is a form of financing created to solve cash flow problems that arise when a debt is not collected on time or it is not possible to offer your recipients suitable payment terms.

Construction finance: The best model?

The need for financial resources depends on the type of activity and the concept of the company’s development. Achievement of satisfactory results in the carried out business activity is possible due to the correctly carried out organizational, management and control measures in the field of finance.

The construction financing issue applies to both start-up companies and those that have been on the market for years.

The selection of an appropriate funding model should begin with an analysis of the availability of the selected source of funds. There are certain limitations in this matter, which are mainly related to internal factors, the legal form of the enterprise, business reputation, size, financial position and other factors.

The construction of large power plants, waste water treatment plants, heavy industry and infrastructure facilities is capital intensive and therefore requires significant external funding.

Viola Funding Limited provides professional services related to financial modeling, finding investors, obtaining loans, engineering design, construction and technical support.

Contact our consultants to learn more about our offers.

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