What is Project Finance ?

Project finance is the long-term financing of infrastructure and industrial projects based upon the projected cash flows of the project, its technical, operational and financial feasibility.

When a business or project requires to be funded, there are two ways of doing it. 1) Based on the strength of balance sheet and amount of available cash. 2) Through Project Finance (Equity and Debt come from various entities)Large companies with strong balance sheets and significant cash resources and access to cheaper public debt or equity markets usually self finance the project based on the balance sheet.Other companies that do not have these resources and who want to restrict the risks of the business to project (not carry it all the way upwards to the promoter), choose the project financing route. In this scenario, the equity comes from the propmoter or sponsor. The debt comes from a financial institution (bank or pension fund or insurance company). The debt size, term of the loan, interest rate, repayment method, covenants and allowable cash distributions to the sposnor are some of the attributes of the financing. Before advancing funds the Lender usually employs Independent Reviewer to study the project attributes and to do due diligence through a team of experts (engineers, lawyers and insurance consultants)The financing terms are determined based on project`s revenues, operating costs, EBITDA, debt coverage ratios etc. Usually they are based on non-recourse basis. So if the project goes into default, the Lender can possess the assets of the project (over which they`ll have security and right) but cannot escalate the claim all the way upwards to the assets of the promoter or sponsor. Hope this helps...

simply put it is Non Recourse Funding of a Project or Assets. That is funding is done purely based on the estimated cash flow generation out of the project and no recourse is sought on the Sponsor's or Prmoter's Balance Sheet. 

Controlling project cost as per the approved project plan.