What is Project Development Finance? It is basically the money borrowed to assist the project handled or taken by a company. The following are the steps to be kept in mind before getting a project development finance:
1. You must be very sure as too much the total project is going to cost. Costs related to the acquisition of the land and the building of the plant on the land, etc.
2. Try to accurately or approximately estimate the sales value of the project. This would help you fix the amount of money to be borrowed from the financial institution keeping your profit margins in mind.
3. The money you borrow should be based on the cost that would be incurred over a period of time, that is on a monthly or a quarterly basis. Keeping all these things in mind, decide the amount of money that should be borrowed from the financial institution.
The following are some of the costs involved in project development finance:
1. Land and building costs: These are the costs related to the land which would be used for the project and building is the actual plant that would be built on the land.
2. Labor and material costs: These are the costs involves in the building up of the plant like materials, wages of the laborers, etc.
3. Professional fees: These are the fees that have to be paid to the professionals for land inspection to determine how suitable the ground is for the project, architect’s fees, etc.
4. Finance costs: It is the rate of interest incurred for borrowing the loan.
5. Contingency costs: These are the costs which could be incurred in the future depending on the happening or non-happening of certain events or incidents. There is always a basket maintained for contingency costs within the range of five percent to twenty five percent.
The following are some of the benefits of project development finance:
1. It covers all the costs right from the acquiring of the land to the inspection charges for the final product.
2. If you have a very good track record of building projects, then you can avail these project loans at a very low rate of interest.
3. The loan period is basically between the range of three to five years and the payment of the loan begins only once the building up of the project is underway.
4. There is flexibility in terms of repayment of the loan. If you are not able to pay the due for the current month then you can pay it along with the next month.