Project Funding Structure in Hanumangarh

What Is a Project Funding Structure?

A project funding structure is the plan for how a project's total cost will be financed: how much will come from the promoters' own funds, how much from term loans, and how much from other sources such as unsecured loans from promoters, convertible instruments, external equity, equipment finance, internal accruals or subsidies. It is usually presented as a sources and uses of funds statement, in which the total of sources equals the total project cost.

The structure matters because it decides the project's risk and cost of capital. Too much debt makes repayment hard and exposes the promoter to lender covenants and guarantees. Too little debt may over-stretch the promoter's own funds or dilute ownership. Lenders typically look for a promoter contribution at a level they consider adequate and for leverage ratios within their norms, which vary by lender and sector.

The funding structure follows from the project cost estimate and feeds into the projections and DSCR analysis. It is more specific than the overall process covered by Project Finance Advisory and focuses on the design of the capital mix and drawdown.

Who Needs Project Funding Structure Advisory?

• Promoters deciding how to fund a new plant or facility
• Businesses planning expansion who must balance debt and own funds
• Developers deciding between bank finance and external equity
• Startups with capital-intensive projects
• Promoters facing a funding gap after cost estimation
• Projects combining loans with government subsidy
• Investors and partners agreeing contributions to a project

When Is Project Funding Structure Advisory Required?

It is not legally required, but it is valuable when:

• The promoter's own funds are limited relative to project cost
• The lender has queried the promoter contribution or leverage
• Several sources are available and the best mix is unclear
• The project will be built in phases with staged funding
• A subsidy or scheme benefit will arrive after investment
• External equity or convertible instruments are being considered
• A funding gap or cost overrun has emerged

What Our Project Funding Structure Advisory Includes

The advisory typically covers:

• Understanding the project cost, promoter capacity and objectives
• Review of the project cost statement
• Options for promoter contribution and its sources
• Term loan sizing based on DSCR and lender norms
• Debt-equity ratio and total outside liabilities to net worth considerations
• Role of unsecured loans from promoters, quasi-equity and convertible instruments
• Equipment finance, lease and other asset-based options
• Treatment of subsidies and incentives and their timing
• External equity or partner participation, where relevant
• Stage-wise drawdown and bridging of the gap until subsidy is received
• Cost of capital and impact on projections
• Sources and uses of funds statement
• Funding gap and contingency plan

Legal and Practical Considerations

Lender norms. Lenders set their own norms for promoter contribution and leverage and may require that promoter funds are brought in first or in proportion. They may also treat promoter loans as quasi-equity only if subordinated.

Borrowing powers of a company. Under Section 180(1)(c) of the Companies Act, 2013, borrowing beyond the aggregate of paid-up capital and free reserves needs a special resolution, and board approval is required for borrowing under Section 179. Charges created on assets must be registered under Section 77.

Loans from directors and members. Money received by a company from a director or member can raise questions under the deposit rules. Exemptions apply in specified cases, for example amounts from a director with the required declaration, and these conditions should be met and documented.

Issue of securities. Raising external equity or convertible instruments follows the issue provisions of the Companies Act, 2013, including private placement and preferential allotment requirements, and FEMA if the investor is a non-resident.

Subsidies and schemes. Scheme benefits depend on the scheme's own eligibility, caps and timing, which must be verified from current guidelines. Subsidy is not assured and often arrives after investment, which creates a bridging need.

Tax and accounting. The treatment of interest, capital subsidy and issue costs affects the numbers and should be reviewed with a tax professional.

Common Mistakes in Project Funding Structures

• Planning on the basis of loan amounts the lender will not sanction
• Overstating the promoter's ability to bring in contribution
• Counting subsidy as a source before it is received
• No plan to bridge the gap between investment and subsidy
• Too much debt for the project's cash flow
• Using unsecured loans without lender acceptance as quasi-equity
• Not providing for cost overrun and contingency
• Ignoring Companies Act requirements for borrowing and raising money

Professional Fees, Government Fees and Timeline

Advisory carries no government fee. Bank processing fees, stamp duty, charge registration and issue filing fees apply only when the structure is implemented and vary by lender and authority. Professional fees depend on the project size, number of funding sources and regulatory elements. An advisory engagement typically takes 5 to 10 working days.

Project Funding Structure vs Project Finance Advisory vs Project Costing

Project costing estimates how much the project needs. Project funding structure decides how it will be funded. Project finance advisory covers the wider process of approaching lenders and managing sanction and disbursement. Related services include Project Costing, Project Finance Advisory and DSCR Analysis.

Need Professional Assistance With Project Funding Structure?

A realistic funding structure avoids surprises midway through the project. The Legal Bank can help you design it and prepare the sources and uses statement. We prepare analysis and documentation; the decision to sanction a loan rests with the lender concerned. Share your requirement to discuss the next steps.