Project and Equity Finance
Project Finance
Project finance is the funding (financing) of long-term infrastructure, industrial projects, and public services using a non-recourse or limited recourse financial structure. The debt and equity used to finance the project are paid back from the cash flow generated by the project.
Project financing is a loan structure that relies primarily on the project’s cash flow for repayment, with the project’s assets, rights, and interests held as secondary collateral. Project finance is especially attractive to the private sector because companies can fund major projects off-balance sheet.
Project finance involves the public funding of infrastructure and other long-term, capital-intensive projects.
This often utilizes a non-recourse or limited recourse financial structure.
Equity Finance
Equity represents your ownership interest in an asset, which could be a home, a racehorse, a business, or any other valuable item. Your ownership interest is based on the percentage of equity you have purchased or otherwise acquired (such as through inheritance) in that asset.
For example, if a racehorse costs $3 million and you paid $1 million of that amount, your equity ownership is 33.3%. If the horse wins a $10 million race, you would subtract the costs for training, feeding, housing, etc. (let’s assume $2.5 million), leaving $7.5 million to be distributed among the owners. As a result, your share would be $2.5 million—an excellent return on your equity investment.
However, if the horse places last, your partners might ask for additional funding, or you may decide to sell your interest in the horse. In that case, you could lose most or even all of your $1 million investment.
Acquiring equity is a way to build net worth. Ownership can be risky, but it’s also enjoyable and brings a sense of pride. Businesses, homes, and even technology take on a different meaning when they are even partially owned.