Project financing involves the selection of some methods of payment of costs associated with its implementation, as well as the identification of investment sources with their structure. The specified method acts as a way to attract resources for investment in order to ensure the implementation of the selected project.
Financing methods
Any financing program involves the use of such methods:
- self-financing, investing only at the expense of own resources;
- corporatization and other types of equity financing;
- the provision of loans by banking institutions, as well as the issuance of bonds;
- leasing;
- financing from budgetary funds;
- a combination of the various forms of financing mentioned above;
- project financing.
Project finance
This is a method that needs to be given more attention in this article, since in the economic literature one can find a variety of views on the issue of its composition. One of the main differences is the definition of this term. With all the variety of its interpretations, it is necessary to single out a narrow and broad definition:
- A broad interpretation suggests the following wording. Project financing is a set of methods and forms of providing money for the implementation of various developments. In this case, this concept is considered as a way of mobilizing different sources of resources with the integrated use of appropriate methods by which the project is financed. It can also be allocated financial resources that are allocated only for strictly defined purposes within the framework of a specific investment development.
- Narrow definition: project financing is a method of providing resources for certain areas of activity, characterized by a way of returning such investments. It is based on only those cash incomes that are generated by the investment project. Also, for this interpretation, the optimal distribution of the risks associated with this project of the parties involved in its implementation is characteristic.
Sources of allocation of cash resources
Any financing of the enterprise and its projects represents monetary resources, which can be divided into equity (internal), as well as borrowed and attracted capital (external). This article will discuss the main forms of such sources in accordance with the objectives of financing specific investment projects.
So, domestic financing should be provided at the expense of the enterprise, which plans the direct implementation of investment developments. With its help, it is supposed to use its own resources in the form of equity (charter) capital. This source can also be attributed to the flow of funds generated in the process of carrying out activities by a business entity (net profit or
depreciation deductions). At the same time, the accumulation of resources intended for the implementation of any project should have a targeted focus, which is achieved by allocating its own budget for this expense item.
Such enterprise financing can only be used when implementing small-scale developments. And capital-intensive projects requiring additional investments are mainly financed from additional sources.
External financing is the use of sources such as funds from various financial institutions and non-financial organizations (state, population and foreign investors), additional contributions from the founders of a business entity. This investment is carried out by mobilizing borrowed funds in the form of equity financing and borrowed resources by attracting credit financing.
Sources of attracting additional funds: advantages and disadvantages
During the implementation of various investment projects, a financing strategy should be justified, an analysis of all possible methods and sources of financing should be carried out, and a careful development of a scheme for involving additional funds to pay for all expenses associated with this subject area of activity should be carried out.
So, an already approved financing scheme should provide:
- the necessary amount of investment in the implementation of the developed project both in the total volume and at each individual stage of its implementation;
- optimization of the composition of financial sources;
- maximum reduction of capital costs and risks of the project itself.
Education financing
Education is a rather important branch of the life of society, requiring additional funding in certain volumes. Its sources are:
- budgets of various levels;
- the provision of paid services in the field of education;
- scientific activity of such institutions with the subsequent implementation of its results;
- Entrepreneurship of these organizations, not related to scientific activity and education.
Turning to statistical data, it should be noted that today municipal and state financing of education occupies about 3% of GDP, and about 2% of GDP comes from the funds of business entities and the population.
Organization's financial and investment strategy
This concept assumes the existence of a set of certain decisions that cover priorities, choice and use of all kinds of sources of additional resources. Such financing is a means aimed at solving technical, marketing, social and management strategies. At the same time, the central place is given to the marketing strategy, which essentially induces other components of decisions in other areas (technical, managerial and social). However, these directions of decision making can be implemented autonomously.