Financing and Loan for a Large Manufacturing Companies
Manufacturing companies play a prominent role in the global economy and it continues to be important with estimated 37.7 million workers; working in the manufacturing companies. It’s also estimated there will be need for 20.6 million manufacturing jobs over the next 10 years according to NAM (the National Association of Manufacturers). Havelet Finance Limited offers project finance and loans for large manufacturing companies and other areas of the economy.
Currently, project finance instruments are most applicable to finance large manufacturing companies projects. If you would like to know more about our large manufacturing company financing services, please contact Havelet Finance Limited team at any time. Our experts are ready to provide you with detailed financial advice.
Understanding Project Finance For Manufacturing Companies
Project finance is defined as a method of financing large projects that require significant costs. Other definitions can be found in the world literature, as authors argue about whether project finance is a method, formula, concept or form of financing.
This method was known even in Ancient Greece, where long-distance trade expeditions were financed in this way. Project finance was popular in the 19th and 20th centuries. In the United States, the PF has supported mining and oil production for many decades. Thanks to this method, among other things, the construction of the largest railways in the United States, the construction of the Suez and Panama Canals, the construction of the London Underground, and the Athens airport were carried out. The term “project finance” has not yet found an equivalent in most European languages. This is due to the low awareness of the possibilities of financing large projects through this innovative tool. Therefore, in the literature we can find such translations as “financing of investment projects” or “structured finance”. The latter best describes the essence of the Project Finance.
Terms and stages of Financing a Manufacturing Companies
Project finance is a broad and multifaceted concept. The specific method of financing will determine the procedure for participants at all stages of the life cycle of finance for a manufacturing companies. The PF cycle is a three-stage process similar to the standard investment process, which includes pre-investment, investment and operational phases.
However, the preparation of a manufacturing company project currently takes from 9–12 months to 2 years or more. If the government and international financial institutions are involved in the PF scheme, the process can be much longer.
Search for Manufacturing Companies Projects
The path to financing a manufacturing companies begins with the search and selection of the most promising projects by potential investors. Investors are constantly looking for projects and receive information about potential projects from sponsors seeking funding.
A reasonable institutional investors hire experienced teams who evaluate investment opportunities professionally. Such teams are able to filter hundreds of projects within a month. Selected projects undergo further comprehensive analysis. At the stages of technical and financial analysis, the range of projects is narrowed.
A set of engineering decisions that determine capital and operating costs, which, along with the parameters of economic efficiency and other criteria for selecting a project, leads to the selection of the optimal project or its variant. As a rule, the investment recommendation is based on an analysis that assumes 100% external funding. Then the project is broken down into several options and analyzed in terms of capital structure and risk distribution among the participants.
Raising Capital for funding a Manufacturing Company
Raising funds to finance a large manufacturing company projects usually takes the form of a letter of intent, which specifies the funding structure. Before signing agreements within the framework of the project finance organization, these proposals are subject to a comprehensive professional assessment. Then the representative of the company will continue the preparation of project documentation.
This work will include, in addition to technical and financial analyses, the preparation of an information memorandum and obtaining the necessary permits. The financial closing of the transaction is associated with the receipt of financing (credit funds). Financing is provided in stages, under the strict control of banks. In some cases, all funds can be immediately made available to the investor, but usually financing is carried out in the form of several tranches, requiring certain conditions to be met and milestones to be reached.
Capital structure in Financing a Large manufacturing Companies
Sources of capital for financing a large manufacturing companies are relatively limited. It is difficult for new companies created to implement an investment project to obtain a high credit rating for a successful issue of securities in the capital market. Access to the capital market can be obtained if investors attract reliable partners with high creditworthiness and ensure their participation at all stages of the project. The main sources of capital in project finance are own, subordinated debt and borrowed capital, each of which has its own advantages and limitations in practical use.
Equity Finance for Manufacturing companies
Internal resources contributed by the company’s shareholders often form the basis for further financing of the project. Equity means a kind of safety cushion for creditors.
The level of equity in project finance should be balanced, as a high share of loan liabilities in cash flow may prevent debt repayment.
The optimal share of equity, determined based on the profitability of the project and the scale of the assessed risk, should ensure smooth debt servicing. A significant share of equity in the structure of the project is a guarantee of the involvement of shareholders in the project, being responsible for their motivation and interest. Typically, the share of equity in total project costs ranges from 10 to 50%.
Havelet Finance Limited offers its clients financing up to 90% of the investment costs of the project, which means the minimum financial participation of the initiators.
The main feature of subordinated capital is the contractual subordination to the payment of principal. This character of capital may apply to shareholders, civil works contractors, future partners, commercial banks or other entities associated with investments.
A variation of indirect project financing is mezzanine financing. This is a type of debt capital that carries a high risk. The issue of debt securities, characteristic of this type of financing, is usually combined with a conversion option into shares or an additional right to purchase shares, the so-called warrant.
This capital is preferred in relation to all other debt obligations of the project company. Large projects are usually financed by a group of lenders within a consortium or independently from several sources. Insurance companies and pension funds often provide funds for a long period of up to 20 years, while most commercial banks offer loans for an average of 10–15 years.
Havelet Finance Limited offers financing from 10 million euros and more for a period of 15–20 years, depending on the financial needs of a particular project. Contact our representatives to find out more.
Project finance for large Manufacturing Companies Projects
A characteristic feature of project finance is the way in which funds are raised. In the case of a traditional bank loan, the borrower’s ability to service the debt is critical to providing financing. Project finance is based on an analysis of the profitability of potential investments, depending on the future cash flow of the project.
Despite the many advantages, the implementation of large investment projects using PF has some disadvantages. First of all, the preparatory stage of the project is expensive, and especially high costs are associated with conducting pre-investment research (financial, tax, legal). International investment consulting company
Havelet Finance Limited has extensive experience in financing large projects in the global world. We provide funding through our High Net worth Angel investors to both startups and existing businesses. Our funding includes business expansion or to accelerate company growth and alongside working capital loans. We are also currently structuring a convertible debt and loan financing and other project financing and international loans at of 2% interest repayable annually with no early prepayment penalties.
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