Project Finance for MSME (Micro, Small, and Medium Enterprises) refers to the arrangement of loans to support the new or expansion, or enhancement of industrial units falling under the category of micro, small, and medium-sized enterprises. These units play an important and vital role in overall development of any economy by generating employment, creating innovative products, and bringing overall economic growth to the area. MSME project finance is tailored to the specific needs and scale of these businesses.
These are some of the key features of Project Finance. To know more, Apply.
Here are few key characteristics of MSME project finance :
-
Limited Resources :
In MSME Project Finance, the bankers/lenders primarily evaluate the cash flows possibly generated by the proposed project and its genuine capacity to repay the loans. In normal circumstances, there are very few collateral available. In case, project gets delayed of does not implemented as expected, lenders have limited options to fall back. -
Long Term Tenure :
Project Finance cases normally have long term tenures starting anywhere from 7 years and goes upto 10 years. This is based on size, complexity, and deliverable requirement of project. The Project financing is normally structured to generate the project's expected cash flows over time. -
Cash Flow Priority :
The repayment of loan/debt is often structured in a way that matches the cash flow generation of Project. It also prioritizes the payment of project-related expenses and start the repayment of loans before offering returns to share-holders or promoters. -
Coverage of CapEx :
In MSME Project Finance, all the capital expenditure requirement is covered in project finance. Land acquisition cost, Land development cost, Building cost, Plant and Machinery, Accessories, Moratorium period interest and all the required capital expenses are taken as part of the Project Cost. -
Risk Categorization :
Risks associated with lending for project finance is slightly higher than the any other loans. There are risks such as probable delay in construction, operation, and market related risks, are weighed and ratings are done according to that. These risks are allocated among the various parties involved, including project sponsors, lenders, and contractors. This weighing and mitigating the risk allocation is a crucial aspect of project finance and is often detailed in complex legal agreements.
