Explainer · 7 min read
What is project finance, and when does it beat a corporate loan?
Project finance lends against the cash flow a specific asset will generate, not against the balance sheet of the company building it. That single distinction shapes every other term in the facility.
August 18, 2026
Key takeaways
- Repayment comes from project revenue, ring-fenced in a special purpose vehicle.
- Recourse to the sponsor is limited, usually to completion and specific guarantees.
- Diligence is heavier and slower than corporate lending because the asset is the security.
- It suits large, long-lived assets with contracted or highly predictable revenue.
The defining feature: repayment from project cash flow
In a corporate loan, a lender looks at the borrower's whole business — its trading history, its existing debts and the assets on its balance sheet — and lends against that. In project finance, the lender looks at one thing: the cash a defined project will generate once it is operating.
That project is normally held in a special purpose vehicle (SPV) created for the purpose. The SPV owns the asset, signs the construction and offtake contracts, borrows the money, and repays it from revenue. If the project underperforms, the lender's claim is largely confined to the SPV and its assets rather than reaching into the sponsor's other businesses.
Limited recourse, not no recourse
"Limited recourse" is often misread as "the sponsor is not on the hook". In practice sponsors nearly always give something: a completion guarantee that turns into limited recourse once the asset is built and tested, cost-overrun support, and warranties on the information supplied at diligence.
The negotiation is about where those obligations stop. A sponsor with a long delivery record and a strong contractor typically gives less; a first-time developer gives more.
When project finance is the right tool
The structure earns its extra cost and complexity when the asset is large relative to the sponsor, long-lived, and generates predictable revenue under contract.
- Capital cost is too large to fund from the sponsor's own balance sheet.
- Revenue is contracted or regulated — an offtake agreement, a concession, long leases.
- The asset has a defined economic life the debt can be sized and amortised against.
- Sponsors want the debt ring-fenced away from their other operations.
When it is the wrong tool
Short-term working capital, equipment purchases and small expansions are better served by ordinary commercial lending. The diligence burden of project finance — feasibility study, independent engineer, financial model, permits, insurance review — is disproportionate below a certain deal size, which is why most project lenders set a floor.
Our own project facilities start at $250,000 and run to $50,000,000, with terms up to 240 months. Below that floor a business facility is usually faster and cheaper.
What a lender reads first
Underwriters rarely start with the glossy summary. They start with the revenue contract, the construction contract and the cost budget, because those three documents determine whether the model can be believed.
- Who pays, how much, for how long, and what happens if they stop.
- Who builds it, for what price, and who carries overrun and delay risk.
- What consents exist today versus what is still an application.
- Who the sponsor is, and what comparable assets they have delivered.
Discuss your project with the lending desk
Facilities from $250,000 to $50,000,000, with terms to 240 months. Underwriting responds within 24–48 hours of a complete submission.