Frequently Asked Questions

Who is eligible for a project loan?

New projects such as a real estate building, manufacturing plant, road construction, power plant, hospital, hotel, etc. are considered for project loans. Getting a project loan is a pitching game. A detailed project report will be required as a "pitch document" for the financial institution (bank, NBFC). This report should detail the scope of the project, experience of the promoters, cost structure, financial projections and background work. The promoters should expect to contribute 30% of the project cost from their own funds. The rest will be financed with a project loan. The tangible assets created in the project such as land, building, machinery, will be taken as collateral (primary security). If the promoters do not have good experience in the field then the financial institution would look for additional collateral or other sources of income in the parent company. Before sanctioning the funds, institutions will check if all the necessary government approvals have been acquired.

Sometimes the requirements of financial institutions can feel jarring and excessive. However, one should understand that the criteria is set based on many years of experience. Properly understanding the requirements and cooperation with an institution can help in fast disbursal of funds.

What would be the interest rates for project loans?

If the project is eligible for a loan, the interest rates are primarily dependent on the industry sector and experience of the promoters. Infrastructure projects could be funded at 8-10% interest, manufacturing projects at 9-12% interest and real estate and other sectors at 10-14% interest. For promoters who don't have relevant experience or collateral, certain NBFCs might still consider their project, though at a higher interest of 14-17%.

The interest rate is dependent on the amount of risk the financial institution takes on funding the project. If they take high risk, they would expect higher returns. Infrastructure projects linked to the government are typically funded at lower interest rates because they only have a performance related risk and no market risk. However, for projects in the real estate sector there is performance as well as market risk.

Who is eligible for equity funding?

Equity funding is very tricky. It is attractive for promoters since it does not include the principal and interest repayment. Instead, it involves giving a part of the company to the investor. The investor gets the return on the basis of profit sharing or on eventual sale of the project.

Since there is high demand for equity funding, it is also very difficult to get and typically takes a lot more time than a loan application. At early stage, when promoters have less experience in the business, most equity investors are found from within the promoters' network.

At growth stage or later stage in a company, many private equity firms would be willing to invest in the business. A growth stage company can be typically thought of as one that has growing and reliable revenue streams with the total turnover exceeding INR 100 cr.

Why should one hire a financial advisor?

As mentioned earlier, fundraising is a pitching game. To make a good pitch, it is important to present your best case, know what the funding institution is looking for, what kind of risks they take and what returns they expect. A promoter’s ability is geared more towards running a business and may not have the time or expertise to make a good pitch. This is where the financial advisors come in. They provide the pitching expertise, having worked on various other deals in the past. A lot of these people are former bankers, so they know the ins and outs of the game.

Another, and perhaps the bigger, reason to hire a financial advisor is the network they have with funding institutions. Financial deals require a large amount of trust and the financial advisors have worked over a long time to develop a good working relationship with financial institutions, and have earned their trust. It’s the same as with a job application. You would have a lot more chance of getting a job if you apply via a reference as against applying without any reference.

What are the terms and fees associated with fundraising?

If applying for a loan, the financial institution will charge a small application fee (usually around 0.5% of loan amount) which they will use to perform their own technical and economic feasibility study for the project.

If hiring a financial advisor, the advisor will sign a mandate with the client that will detail all terms and fees involved with raising the funds. There will be a percentage fee on the amount raised. The fee typically ranges from 1-3%, with a higher fee for lower amounts. A portion of the fee is payable at sanction of the funds and the rest after disbursal.

Loan applications can take 30-45 days to process while equity applications might take anywhere between 2-6 months.

How to choose a good financial advisor?

Financial advisors provide a valuable service. Without their involvement, many good projects would be delayed by several months. Some projects would not be able to take-off at all. Despite their value, it is important to be careful while hiring a financial advisor. Not everything is as advertised. Most financial advisors lack the network, credibility and experience to see a deal through. Many lack professionalism. Some might charge a fee in advance, without any proof of work, and then fail to deliver. Some might even commit fraud. It is therefore very important to check the background and experience of the financial advisor you are hiring.

At FullSurety, we have partnered with experienced financial advisors. We have verified their past deals, the strength of their institution network, and have standardized their terms and fee structure. These are some of the most experienced people in the business and have executed deals worth thousands of crores.

Do give us a try when you are looking to raise funds for your next project. We and our partners look forward to providing you the best fundraising experience.