Project Funding Cost
To clarify, it seems that in recent years the general client and amateur broker have adopted the word “upfront fee” as a catch-all term for all legitimate costs in project financing. Therefore, is 100% project financing possible? = No “upfront fees”? Let’s consider the following:
Financing Transaction EXAMPLE:
A law firm, investment bank, securities dealer or business advisory firm has a request for a $100 million capital raise. The firm conducts a consultation (which is usually paid for and credited to the client) and determines the viability of the project. If acceptable, the firm will ask to be hired to structure the contract for compliance. Once completed, the firm will approach its financing partner, e.g. the fund.
Experienced firms that are reliably successful in obtaining financing for their projects know that they must (and always do) spend the following typical average budgets on required licensed services (for other various firms) to make their project and collateral bankable:
- Law firm work to prepare and position the project $100,000
- Authorized underwriting to endorse and certify the project $40,000
- Securing third party assets as external collateral $100,000
- Licensed appraisals that certify the monetization value of assets $30,000
- Licensed transaction structuring and certification of structure $50,000
- Law firm administration and facilitation of all transaction aspects $150,000.
Total Average Real Cost of Being “Bankable” with Collateral = $500,000.
The majority of capital-seeking “borrower” clients mistakenly start by “buying loans” prematurely, falsely assuming they are in a position to do so. They start by asking hasty questions about the “terms of the loan” and how quickly it can be “forgiven,” completely forgetting whether they are already prepared and qualified to take out a loan.
All companies that successfully obtain project financing always spend hundreds of thousands of dollars on the proper licensed institutional services and certified prep work to ensure they are qualified, have a “bank compliant” package of documents, and have the proper collateral that can be widely accepted.
BOTTOM LINE:
Even when 100% financing is possible, there is always a small cost associated with it. This means that the customer must have some liquid capital (as opposed to the usual 20-50%) in order to complete the transaction.
