Project Finance vs Corporate Finance #Finance

real-estate development is a classic example of project Finance what is project #1a73e8; text-decoration: none;">Finance will simply put it’s just a long-term financing of an independent Capital investment and when I say an independent Capital investment really what I mean by that is it’s a project that can be

distinctly isolated where you can see the Cash Flows and the Assets that are contained together and a financing that’s put around those is particularly them as opposed to say a company that may be a huge collection of project

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance or operating Assets all combined so the Cash Flow has to be sufficient to cover the operating expenses and to fund the financing repayment

requirements because it’s a standalone entity there’s not there’s no other source of Cash Flow that can help repay the financing and typically the financing is made up of Debt and Equity but in particular its match to the life of

the asset so if you’re building a mine a goldmine that’s 15 years you’re gonna try to match your financing to that if you’re building something that has a life of a hundred years like a railway or toll road you’re gonna match your financing to that so examples of

project Finance include mining at oil and gas when you’re talking about a particular asset one one mine or one oil field for example it also includes buildings and

construction so Real Estate development is a prime example of that where it’s an isolated economic development that can then be sold it’s self funding and all of the economics are contained within this opportunity so how does that compare to corporate

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance when a corporation is undergoing investment it has the ability to use Cash Flow from other operating activities to fund it it also has the ability to use its

general Credit worthiness or its Credit rating to borrow money and fund that project it doesn’t have to isolate the project necessarily and get funding based on that project alone so issuing Equity with an indefinite time horizon is something

that corporations can often do and do do whereas Equity that’s issued with a corporate Finance investment typically has a life to it so for example

there’s a specific project that has a time horizon for the Equity and the Equity will be repaid at the end of that time horizon when it comes to funding project text-decoration: none;">Finance the Capital stack has several considerations the first thing is draws in the case of this Real Estate financial modeling we’re gonna have a draw on a construction Loan we’re gonna have to

look at security and priority for other lenders in the Capital stack we’re gonna have to carefully structure the term so that the term matches the length of time it would take to develop and sell this project well then have to analyze the trade-off between fixed and floating

Interest Rates and give careful consideration to pricing around the Equity so when we look at the Capital stack together we’ve got three components the riskiest at the bottom is Equity in the middle we’ve got

subordinated Debt and then at the top the most secure we have senior Debt later in the course we’re gonna always be referring back to this Capital stack we’re gonna be talking about various stages of Real Estate

development and various types of Capital associated with each stage so we’ll be referring back to senior Debt subordinated Debt and Equity throughout this course if you’d like a little more detail on the

Capital stack and various types of financing that are out there please take our introduction to corporate Finance course it’s offered on our website

for free and will give you all the background you need on various types of Finance activity now let’s move on to the next step