Making The Most Of Your Money

3 Tips To Mitigate The Risks Of 100% Project Financing

31 July 2023 by Glen Robinson

Utilizing 100% financing for a large commercial project is a highly advantageous strategy that can help eliminate many upfront costs and reduce project stakeholder risk. However, as with any financing strategy, risks still exist. Understanding the details of financing 100% of your project's costs is crucial to developing strategies to control and mitigate those risks throughout the life of your project.

If you plan to finance 100% of your project's upfront costs, these three strategies can help you mitigate your risks and ensure the long-term profitability of your project.

1. Work Closely With Lenders

100% project financing requires lenders to take on substantially more risk than other funding strategies. Since you aren't supplying any of the upfront capital, most of the project's risk will fall to your lender. As a result, you can expect your lenders to perform substantial due diligence before approving your project loan.

One of the most important things you can do is to work closely with your lenders during the initial funding phase. You are likely to receive better loan terms by providing detailed information on your project's long-term plans and information on market conditions and potential risks. While your lenders will conduct their own research, your information can potentially help to address any concerns.

2. Identify Potential Project Risks

100% funding plans rely on your project's eventual profitability to repay the costs of the loan. Anything that delays your project's completion or slows the road to profitability can affect your ability to repay the loan or may put your collateral at risk. This repayment structure can be highly advantageous, but it also means that setbacks can be potentially very costly.

One of the best ways to mitigate these issues is by carefully identifying project risks as early in the process as possible. Identifying these risks can help you develop contingency plans to keep the project moving forward. For example, for construction projects, it will likely be crucial to have backup options for suppliers, contractors, and other contributors that may impact your ability to complete the project.

3. Consider Collateral Options Carefully

Since most 100% project funding loans are non-recourse loans, your collateral will typically be the only direct risk you take. You will need to secure a large amount of information regarding your collateral for your lender, including proof of ownership, asset valuation, and more. You will likely need to work with professional appraisal services during this process and provide proof of complete asset insurance.

Choosing appropriate collateral to back your loan is one of the most critical steps in mitigating your risks. Remember that no project is without risk, and profitability is never guaranteed, so choosing the correct assets to back your loan is essential to protecting your other business interests from project setbacks or failures.

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