After receiving the necessary documents (application form and project presentation), our team will try to review your request as soon as possible, and leading experts will offer the best options for project funding.
This trend is becoming more pronounced as banks tighten their requirements for borrowers and their projects in an effort to minimize risks.
Private investment funds of various types, uniting from a few dozen to several million small investors, are now also actively financing long-term business projects around the world. Capital of private investment funds can be found in power plants, factories, roads, hotels, malls, hospitals, LNG terminals and oil platforms.
Our team cooperates with large companies that implement capital-intensive investment projects at the international level.
We are ready to provide flexible financing conditions for any project, depending on the country, client, financing goals, project readiness, industry and other factors. By treating our clients with respect and in a highly professional manner, we ensure that each financial model meets the individual needs of a particular client.
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Advantages of loans issued by private investment funds
To better understand the essence of loans issued by private investors / private investment funds, we need to explain what debt investments are and why it is beneficial for some companies and individuals to invest in long-term financing of other people's projects.All types of investments can be broadly divided into debt investments and equity investments.
In the first case, the investor acquires an asset or part of it. The return on this investment depends on the actual performance of the asset.
This category includes investments in stocks, commercial real estate or a share in a business.
In debt investment, a company or private investor lends money to a person, business, municipality, or government. The income from these investments is fixed. Unlike equity investments, debt must be repaid at some point. Typical examples of this group of investments are loans and bonds.
Which of the above types of investments is more risky?
It is obvious that equity investments are most susceptible to the influence of different market factors, such as volatility in prices for raw materials and energy, employment, incomes of the population, activity of competitors, and many others.
Although equity investments can provide higher returns under the right conditions, they are considered riskier than investments in loans and other debt instruments.
Today, investment in loans has become a significant alternative to traditional types of assets, so the market is increasing the supply of long-term loans from private investors.
Interest rates, loan repayment terms and other parameters can vary greatly depending on the following factors:
• Host country.
• Sector of the economy.
• Scale of funding.
• Financing duration.
• Purpose of the loan.
• Reputation of the borrower.
• Completion of the project.
Investments in loans, which have gained popularity in recent years, are characterized by limited potential for profit, but they provide investors with greater confidence and stability. Millions of small investors around the world are joining funds to take advantage of collective investment in this type of financial instrument.
Large private investors, having complete freedom, are able to compete with banks in financing both long-term investment projects and current commercial operations.
This means relatively low interest rates and flexible financing terms that borrowers can easily adapt to the needs of a particular project based on negotiations with funders. Unlike banks, private investors and funds are not constrained by the rigid framework of standard banking procedures, including in terms of project evaluation and risk management.
Private investors who issue loans for the development of long-term business projects are more willing to approve floating interest rates.
This is critical for projects that are characterized by a clear change in financial conditions in different phases and require a differentiated approach to financing depending on the degree of completion of the facility, the market situation, and so on.
Finally, private investors make decisions on average 30-50% faster when it comes to large long-term loans.
This means that the project owner can start contracting, purchasing materials and / or equipment, hiring staff and other processes that require financial resources much earlier.
Given all these advantages, loans from private investors are increasingly being used for such large projects as the construction of factories and power plants, modernization of public infrastructure, oil and gas production, mineral processing, the construction of commercial real estate, and others. Our company is ready to offer funds from private investors for your project on favorable terms anywhere in the world.
Contact our team for advice at any time.
Private investment funds breathe life into large business projects
Uninterrupted access to capital is an important prerequisite for the efficient operation of large businesses at every stage.This applies to both internal resources and external capital, the main sources of which are banks. Recent studies by the European Bank for Reconstruction and Development show that access to finance is the second most important barrier to business operations, including investment activity. Loans issued by private investors and / or private investment funds can be a valuable alternative to bank lending at certain stages.
A report prepared by Deutsche Bank shows that more than a third of companies have a rather diverse approach to how they finance their activities.
At the same time, the respondents pointed out not only the unwillingness to turn to external financing, but also the very difficult access to borrowed capital as a serious barrier to business development.
This applies both to financing the current activities of the enterprise and the implementation of long-term investment projects.
In the first case, we are talking about maintaining liquidity, which is a determining factor for the survival of a business. This awareness increasingly translates into an active search by companies for new sources and mechanisms of financing outside the banking system. Against this background, individual investors and private investment funds are becoming increasingly popular, offering a range of financial services, including long-term loans and other investment support.
According to popular belief, getting a loan from banks involves less risk, since large financial institutions in general are more trusted by borrowers than private investors. In developed countries, business confidence in commercial banks really remains at a high level.
However, it is clear that trust and confidence does not mean easy access to loans.
SMEs and large companies from a number of capital-intensive industries are increasingly taking advantage of private investment funds, as traditional lending is time consuming and labor-intensive, and in some cases even unaffordable for high-risk projects. Some entrepreneurs, especially those representing small and medium companies, apply for these sources of capital without even disclosing the details of the business project being funded.
Private investment funds have been successfully operating in the financial markets for many decades, offering almost instant access to long-term capital without redundant formalities and detailed verification of borrowers' creditworthiness (project verification). The long history of funds and large private investors operating in the European market allows us to note a phase of recovery in this market after the last global crisis, as a result of which banks tightened their requirements for issuing large loans.
Moreover, recent trends towards changes in the banking legislation of leading countries and low interest rates lead to a more cautious approach of banks to lending for the development of long-term investment projects.
Those fears and restrictions that scare away banks contribute to more active lending to businesses by private investors and funds.
Companies faced with high demands from banks in the form of time-consuming and lengthy formal procedures often do not receive the expected amount, wasting time and business opportunities. Companies seeking to fill this financial gap are looking for support from private investors, where easy and immediate access to a source of financing allows them to achieve their commercial goals. The result can also be the use of funds from private investment funds to finance their activities, which is often practiced among European companies.
Under certain legal conditions, interest on a loan taken from a private investor may be included in the company's tax-deductible expenses. For this, it may be important to actually use the loan or part of it for business activities. It is also important whether the expenses incurred are included in the list of expenses that are not recognized as expenses subject to tax deduction.
Interest must actually be paid, as accrued but unpaid interest on loans is not tax deductible. Therefore, it is necessary to properly document the use of the loan in investment activities.
Private investment funds are flexible with regard to required documents and formal procedures. These financial institutions are generally able to transfer funds to a company account faster than a bank. In many banks, the initial scoring goes quite smoothly, but this is only the beginning of numerous procedures that represent a long-term screening of potential borrowers.
These obvious advantages make private capital a powerful driver for the development of large investment projects in industry, the energy sector and even in public infrastructure (for example, the construction of bridges, autobahns, tunnels). There is no exact statistics on such investments, but it is obvious that we are talking about tens of billions of euros on a global scale.
If we analyze the observed activity of business, today there is a growing interest in the wider use of loans issued by private investment funds in the development of large projects. Polls of experts and analysts show that countries such as the USA, Great Britain, Ireland, Japan, Spain, the United Arab Emirates, Germany, India, France, Portugal, Poland, Italy and a number of others have the greatest potential for the development of this area.
Loan issued by a private investor: a new opportunity for project financing
When financing a large investment project, business owners can use a wide range of financial instruments, including the issue of bonds, long-term bank loans, leasing, and others.Of course, the most common form of financing in most industries is loans issued by commercial banks. According to statistics, most projects in the energy sector, housing construction, heavy industry, agriculture, hospitality and other areas are financed in this way.
However, the requirements of banks to borrowers and their investment projects are quite strict. This applies both to the formal requirements for project documentation and the requirements for the borrower's assets, which should serve as collateral for the loan. A valuable alternative to a bank loan can be long-term loans issued by private investment funds and private investors, which in most cases are more flexible and affordable for businesses at the construction and development stage.
Private investors and funds usually adhere to the following scheme:
1. The applicant provides the lender with a set of required documents, which usually includes proof of ownership of the project assets, detailed project documentation and financial statements for a certain period.
2. The submitted documents are reviewed by a private investor and his experts, and based on the results of the investment project verification, experts make a decision on financing.
3. When a positive decision is made, the parties conclude an appropriate loan agreement and register it with state-authorized structures.
4. The procedure for monitoring the implementation of an investment project is either absent or significantly simplified in comparison with the standard procedures used by most banks.
Loans from private investment funds or private investors can be an important financial instrument in modern project finance (PF) models where financing is off-balance sheet based on the future cash flows of a specific project.
In these cases, credit funds are usually issued to a special purpose vehicle, a company established solely for the development of a specific investment.
The amount of credit given to clients by private investors depends on the value of the assets serving as collateral. The price of the collateral is usually determined by the experienced experts, taking into account the technical condition of the asset, as well as its area, age and degree of wear.
When it comes to project finance, private investors bear more risk here, basing their decision on the expected cash flows that the project should generate in the future, and not on the current assets of the project owners or SPV. Clearly, the higher risk to the lender in the PF models is offset by the higher cost of capital and the more complex and costly project verification process.
Nevertheless, the presence of a huge number of private investors and funds opens up wide opportunities for businesses to finance various types of projects.
These funders can offer borrowers flexible loan terms, different loan amounts, debt repayment periods, and interest payment schedules.
Requirements for borrowers can be much less stringent than those applied by large commercial banks, since private investors in most cases are not required to follow standard procedures and are largely guided by their business sense and intuition.
The advantages and disadvantages of financing large investment projects through loans from private investment funds and private investors can largely be explained by the features that make this type of financing attractive for small companies initiating ambitious projects.
Advantages of a loan issued by a private investor:
• Low interest rate on a loan, which in some cases can be 2-3 times lower compared to financial products offered by banks.
• Fast signing of a loan agreement and the ability to raise capital in the shortest possible time, avoiding complex banking procedures.
• The minimum number of papers compared to traditional bank lending, which makes the financing process less labor intensive for the borrowing company.
• A simple and flexible procedure for changing the terms of the loan through negotiations with the investor, without strict restrictions imposed by the rules of the bank.
Disadvantages of project financing by a private investor:
• Possible non-standard requirements for the borrower or for his project, which may be put forward by a private investor for issuing a loan.
• The risk of fraud when interacting with little-known investors, which requires the borrower to be careful and collect information about a particular partner.
In order to offset the shortcomings and maximize the benefits of private capital, we recommend that you work only with trusted investors and carefully study the loan agreement before signing.
ESFC Investment Group has been successfully cooperating with companies in the energy sector, hospitality business, agriculture, chemical industry, mining, oil and gas sector, residential construction and other industries for a long time, helping to develop expensive projects around the world.
