Investments. Funding for innovation (most important)

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Investments. Funding for innovation (most important)

Lecture notes, cheat sheets

Directory / Lecture notes, cheat sheets

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FINANCING OF INNOVATION ACTIVITIES

One way to reduce risk is project financing, which is used in the development of large investment projects.

There are three main forms of project financing:

1) financing with full recourse to the borrower (recourse is a requirement to repay the borrowed amount). There are certain guarantees or limited liability requirements for project lenders. The risks of the project fall on the borrower, but the loan price is low. Such financing is used for low-profit and non-profit projects;

2) financing without the right of recourse to the borrower. The lender has no guarantees from the borrower and bears all the risks associated with the implementation of the project. Here, the loan price is quite high and this form of financing is used for highly profitable projects using the latest technologies, resulting in competitive products;

3) financing with limited recourse. It involves the distribution of project risks among its participants, so that everyone takes on the risks that depend on him. At the same time, project participants are interested in its effective implementation, since their profit depends on it.

Compared to conventional long-term lending, project finance has the following features:

▪ banks, institutional investors and corporations participate in project financing;

▪ several sources of financing can be used:

▪ the degree of risk for the bank in this case is higher, since in the event of bankruptcy of the project it is not possible to make claims to the borrower at the expense of its remaining assets;

▪ analysis of project financing is carried out at a deep level;

▪ risks are redistributed;

▪ the project is monitored by the manager and the project company;

▪ Borrowers benefit from limited liability, but are subject to higher interest rates and fees. There is a risk for the borrower of losing independence in running the project. The advantage of banks is the possibility of tighter control.

The bank's participation in project financing is carried out by parallel and sequential financing. Parallel is divided into independent, when the bank is limited only to financing, and joint, when the bank is a manager for control and settlement. With successive transfer of debt under an assignment agreement and its securitization.

Project financing can be considered as targeted lending, a way to mobilize additional funds and distribute risks, as one of the promising tools for the participation of commercial banks in capital-intensive projects.

Author: Kuznetsova S.A.

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