Alternative Project Financing is a process which is structured without your project goes through the ‘Underwriting’ process through which individual professional or institution takes on financial risk for a fee. How many good/profitable project were stopped by not correct evaluations by risk-taker? But you know that the Lender will decide to fund your project or not according the Underwriter’s opinion.
Then one of the undoubted vantage of alternative project finance is that your project will not pass under the underwriter risk-assessment.
When we present a project to a Financier to be funded according the traditional project financing option the documentation must be genuinely at ‘shovel ready’ stage which it means that the documentation will at the very least include (i) proof of land/site ownership, (ii) signed off-take agreement, (iii) engineering procurement and construction (EPC) contractor agreement, feedstock agreement where needed, (iv) the company or SPV, (v) feasibility studies, (vi) permits and permissions, (vii) LOI, MOU, HOA etc…, (viii) financials.
Now, also if different financiers can have different tolerances, no Lenders in their right mind will accept to issue a binding lending terms and conditions without he confirmed and checked the minimum requirements list as per above description.
Then, another undoubted vantage of alternative project finance is that you can start your funding process without to have ready all or part of the above mentioned document list; this gives an impressive vantage about to manage the overall project timing, the funding phase can start much earlier and much earlier the project will start to release the expected profits.
As you are aware genuine Financiers ask for a minimum 5% – 10% equity participation form the project owner (without it every application for traditional project financing does not make any sense).
Now, the equity participation is calculated on the total project investment value; in the same time, to get the availability and rights of an asset it will need a much less budget than to provide the 5% – 10% equity participation, because normally an alternative finance structure starts with a face value asset starting from 10% of the total investment value; then it is clear that the price to get the availability of the asset will be less than the requested equity for a traditional project financing.