Project finance

Okay kiddo, do you know what a project is? It's like when you have to do a task, like building a sand castle, and you need money to buy tools and materials. Similarly, a company or a group of people may have a big plan, like building a wind farm, and they need a lot of money to make it happen. That's where project finance comes in!

Project finance is when a group of lenders, like a bank or investors, agree to give money to a project because they believe the project will make money in the future. They take a risk because sometimes projects don't make as much money as expected.

To make sure the project is successful, the people building it create a plan, including how much money they need, what they will use it for, and when they will pay it back. This is called a financial model. The financial model helps the lenders decide if they want to give the money and if the project is worth the risk.

Sometimes projects take a long time to make money, so the lenders might not get paid back for years. To make the lenders feel better, the people building the project might use their assets, like land or buildings, as collateral. This means if the people building the project can't pay back the money, the lenders can take their assets to pay it back.

When a project is successful and starts making money, the lenders get paid back with interest. The people building the project might also share some of the profits with the lenders. It's like if you borrowed money from a friend and promised to pay them back with extra money when you get your allowance.

So, project finance is like borrowing money for a big project and promising to pay it back when the project starts making money. The lenders take a risk, but if the project works out, they make money too!