Singapore’s growth has garnered much optimism of late, with pundits adjusting growth forecasts from 1-3% in the earlier part of 2024 to 2-3% at the later half of the year. Against the backdrop of a growing economy, entrepreneurs looking to capitalise on this momentum can leverage project financing to turn ideas into reality.
It offers businesses a practical solution to fund initiatives. Instead of shouldering the entire cost for their projects upfront, they can rely on equity or choose to pay in instalments. But what is project financing and how does it work? In this article, we’ll break it down so you can make an informed decision.
Project financing is a type of business loan often used to fund large business projects, both locally and internationally. In Singapore, project loans are provided by banks, as well as non-bank lenders including venture capitalists, private moneylenders, peer to peer lenders, crowdfunding and private equity firms.
Among the many project loan providers is the government of Singapore itself, through the Enterprise Financing Scheme - Project Loan (EFS-PL) run by Enterprise Singapore that is especially meant to help Small and Medium Enterprises (SMEs) with their overseas project plans.
Project financing can be obtained for a number of different project types. These include launching new enterprises or branches, researching and developing new products, cross-border trade, and building projects. Project loans are also useful for capital intensive, large scale projects such as oil and gas plants, transportation systems, infrastructure, healthcare and real estate initiatives.
The process starts with a borrower (sponsor) identifying a project that requires significant capital investment, such as infrastructure projects, real estate developments, and renewable energy installations.
Often these projects have long gestation periods before they can generate returns, which makes them risky to lenders. As such, they are structured in a way that mitigates these risks by focusing primarily on the project’s future cash flow and performance. Bearing this in mind, generally, the key steps involved include:
A Special Purpose Vehicle (SPV) is created to own and manage the project, in doing so, isolating the risks and liabilities from the parent company.
Borrower submits a detailed application, including feasibility studies, cash flow projects, and risk assessments. Lenders and investors will assess the project’s viability, taking into consideration aspects such as projected revenue.
Once a deal is signed, funding is disbursed to the SPV, which has to ensure that the project adheres to timelines and budgets while fulfilling all the necessary contractual obligations.
As the project becomes operational and generates revenue, loan repayments are made from the cash flow, often prioritising operational expenses and debt servicing before any returns to equity investors.
Different from traditional loans, eligibility for project financing varies from institution to institution. Project loans from banks via the Enterprise Financing Scheme require borrowers to be:
For project financing outside the EFS scheme, the conditions are not standardised, but many general principles and good practices still apply.
For example, businesses with stronger creditworthiness, sound financials, and clear project feasibility are more likely to secure loans. Institutions often favour companies operating in the private sector with a proven track record or strong prospects of profitability. Additionally, businesses may be required to:
A well-prepared loan application with comprehensive documentation can significantly improve the chances of approval for project financing, whether under the EFS or other financing options.
Companies will need to contact either the bank or private lender offering the project loan. Keep in mind that these financial institutions can offer project financing in several different forms to meet your needs. It is important to keep an open communication with your loan provider so that the type of loan product you apply for matches your project needs, repayment capacity, cashflow and other key factors.
Project financing loans, though beneficial for funding large projects, can be complex, and time-consuming to arrange. Through our platform, you can gain access to a diverse network of 45 lending partners. Whether you need funds for an overseas or domestic project, or need a loan to cover operating expenses, we can help. Register and begin your application. If you wish to consult our experts, you can do so by clicking here.
Lina heads up all things marketing and branding at Lendingpot. With a keen aesthetic eye, she believes in the use of design to communicate with our SME community and aspires to turn Lendingpot into a household name. Out of work, she is an avid camper and appreciator of nature’s best works.
