Construction Finance:

Construction Finance; an edge to large infrastructure projects

Construction of renewable energy plant or the modernization of wastewater treatment plants, require impeccable organization, professional supervision and significant investments. Construction finance is associated with huge costs that project sponsors will have to incur long before the formation of stable cash flows from the project.

The construction of facilities such as hydroelectric power plants, heavy industrial plants, water treatment plants, LNG regasification terminals, mining facilities and the construction of chemical plants remains the most capital intensive.

Means to secure funding sources for construction projects:

When implementing large projects as environmental, energy, large industrial and infrastructure projects, you can rely on the professionalism of Viola Funding Limited teams.

Viola Funding Limited provides models of construction finance for large projects with a maximum contribution of the initiator: 100%

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.

Viola funding have completed numerous projects in many countries around the world, including the European Union, the United States, Latin America, the Middle East and Africa.

Sources of finance in the construction industry

Construction finance sources can be classified based on the legal status of the capital provider in relation to the customer. Internal financing takes place when financial resources for construction are generated from the internal resources of an enterprise, including income from its commercial activities, sale or lease of unused assets, etc.

Debt financing and equity financing are also distinguished. In the first case, companies raise funds through debt instruments. 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.

Issue of shares

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

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. Registered shares can only be sold with a written statement from the owner and often with the consent of the company’s management. Bearer shares can be sold without unnecessary formalities.

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.

Shares can be purchased by investors in the following ways:

• Secondary securities market, which sells already traded shares. Here resources are actually redistributed among active investors.

• The primary securities market, where newly issued securities are traded for the first time by banks and other financial institutions.

The shares remain in circulation, but their owner may change, and hence the structure of the company’s shareholders. Raising capital in this form is associated with significant costs for business, so the issue of shares is not suitable for every company.

Issue of bonds for construction finance

A bond is a security issued in series. With this paper, the issuer confirms that he is the debtor of the bond holder and is obliged to provide him with a certain financial benefit (bond redemption).

The issue of convertible bonds is especially beneficial for projects with good growth prospects. By using this model, the founders of the company retain influence on the direction of its development at the beginning of the business. It is worth adding that the interest rate on convertible bonds may be lower compared to conventional bonds.

Securitization of assets

A feature of securitization is that events related to the implementation of a specific program are isolated from the initiator of the project. Thus, the profit from securities is virtually independent of the financial condition of the company.

The main advantage of securitization is the rapid conversion of low-liquid assets into cash. Securitization makes it possible to improve the financial position and ensure the continuity of financing for the construction of important projects.

Venture capital

Venture capital can be defined as equity capital invested over a limited period of time by external investors in small (medium) companies with the aim of implementing a unique, innovative project.
On the one hand, such projects carry a high risk of investment failure, but on the other hand, they can provide high expected returns due to the increase in the cost of the invested capital over time.

Business angels

A business angel is an individual who has decided to invest their private funds in an enterprise with high potential for growth. Business angels are most often ambitious, risk-averse entrepreneurs with significant professional achievements and significant personal assets that allow them to finance businesses at the start-up stage.

Construction loans

When planning to attract bank financing, it is extremely important to choose the right bank.

When concluding a loan agreement, the bank undertakes to provide the borrower with funds for the construction of the facility for a specified period. In turn, the borrower undertakes to use this money on the terms specified in the contract, returning the entire amount with interest at maturity with payment of a commission.

A construction loan can be obtained by individuals, legal entities, as well as business entities without legal personality.

Leasing to finance construction

Leasing is widely recognized as an attractive method of financing investment projects.

It is a mixed form of contracts such as lease and purchase in installments, but formally leasing cannot be equated with any of the above types of relationships.

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.