Bankability Law Essay Example | Topics and Well Written Essays - 4000 words

Bankability Law - Essay Example One of the major aspects of project financing is understanding the reason for project financing, preparing the financial plan, determining the risks of the project, designing the project, and sourcing the required finance for the completion of the project. The last aspect of project financing, sourcing the funds, requires a broad knowledge for designing contractual agreements, to support the bid or finances. In many cases, the financiers of the project will include government agencies, private partnerships, financing structures, and major financial institutions. The financing institutions will usually require an analysis of the project so that the credit requirements of the borrower can be ascertained, the borrowing capacity of the project be ascertained, and the project analyzed in terms of cash flows, expected return and the repayment of the cost. The financing institutions will take into account the tax and accounting issues of the project and the risk factors to determine the fea sibility of completion and the chances of repayment. In this case, the concept of bankability refers to the consideration taken by a lender to determine whether a project is feasible and will repay the loan provided for its implementation2. A project in finance is usually considered bankable if the major providers of funds are willing to lend to finance the project. Many projects are funded on a project finance consideration, where a special procedure is set to determine the estimated cash flows and determine whether the project is feasible. In terms of bankability, the project financier will assess the expected cash flows and duration of the project; assess the risks associated with the project to determine whether the project is a credible choice for financing. The financing for a project is usually repaid through the cash flows earned from a project, and a financier will always look to the assets and revenues of the project before extending a loan. In traditional forms of finance , the financier will consider the past credit performance of the borrower and determine the ability to repay a loan, but in project financing, the lender considers the ability of the project to repay its financing. The subject of risk of the project is also important since the lender usually has no recourse to the project assets; therefore, the expected cash flows are used to repay the loan3. This means that the credit risk associated with the borrower is of no consequence, instead, the risk associated with the project determines the amount and duration of the loan being extended. However, before the lender decides whether to lend to the project controllers, some risk issues have to be assessed and the project itself analyzed. According to Vinter4, bankability differs in terms of the deal itself, the market for the project, and the risks associated with the project. This means that different projects have different associations for bankability, depending on the lender’s view of the feasibility of the project. This paper will analyze the risks that lenders will analyze when considering the bankability of a project, the steps taken to mitigate these risks, and the decisions regarding the bankability of projects. The paper will then exemplify the issue of bankability using already completed projects in the global market. Risk minimization process The consideration of the bankability o