Project Loan is a kind of medium or long-term loan released for a particular purpose, which requires the project's set up separate company to bear the loan. The cash flow and profits of the future company will be the source of repayment, the assets of which will be security on the loan.
Two Types of Project Loan
- Project Loan without the right of recourse
Project Loan without the right of recourse is also called Absolute Project Loan, in which manner, future repayment of capital plus interest will solely depend on the operating benefit of the proper project. At the same time, lender will receive real guarantee from the assets of the project to secure its own interest. If the project fails to complete or fails to operate, and its assets or profits are not enough to repay the entire loan, the lender has no recourse to the borrower in the project.
- Project Loan with the right of recourse
The lender can also require a third party to provide security, in addition to the usage of operating benefit of the loan project as source of repayment and receipt of real guarantee. The lender has the right of recourse to the guarantor, when the loan is not duly repaid in the future.