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#Finance Guides

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#$10M+ Projects #Due Diligence #Feasibility Study #Project Finance #Project Owners

Due diligence is the comprehensive assessment process that lenders and financiers undertake before committing to a large project loan. For projects seeking finance from $10 million and above, the due diligence process is thorough and multi-disciplinary, covering financial, technical, environmental, legal and market dimensions of the project. Understanding what due diligence involves - and preparing the necessary documentation in advance - is one of the most effective things a project owner can do to improve their chances of securing finance. Prime Project Fund outlines the key components of due diligence for large project finance applications.

Financial Due Diligence

Financial due diligence involves a detailed review of the project's financial model, including revenue projections, cost estimates, cash flow forecasts and sensitivity analysis. Lenders will examine the assumptions underlying the financial model closely, testing whether projected revenues are realistic, whether costs have been accurately estimated, and whether the project can service its debt under a range of adverse scenarios. Financial analysis by qualified economists and financial consultants is typically required as part of this process.

Technical Due Diligence

Technical due diligence assesses whether the project can be built as planned, within the estimated budget and on the projected timeline. This involves review by qualified building engineers, structural architects and construction specialists. For infrastructure and energy projects, technical due diligence also examines the design and engineering basis of the project, the qualifications of the construction contractor, and the risk of cost overrun or delay.

Site and Environmental Assessments

Due diligence for large projects almost always includes a range of site and environmental assessments. These provide lenders with confidence that the project site is suitable for the proposed development and that the project does not carry unacceptable environmental risks. Key assessments include:

• Site analysis and site appraisal - assessment of the physical suitability of the site for the proposed development
• Environmental impact studies - formal assessment of the project's environmental impact
• Environmental impact management - plans for managing and mitigating environmental effects
• Ecological assessment - evaluation of the project's impact on local ecology
• Hydro-geological assessment - analysis of water table, groundwater and hydrological conditions
• Landscape impact assessment - assessment of visual and landscape effects
• Archaeological surveys - identification of any archaeological significance of the site

Valuations and Appraisals

Project valuations and property appraisals form a central part of the due diligence process for real estate and land-based projects. Independent valuations provide lenders with an objective assessment of the value of the project assets, both in their current state and on completion of the development. Project valuations also inform the overall financial structure of the deal, determining how much finance can be secured against the project's assets and projected value.

Strategic Planning and Project Management

Beyond the specific assessments listed above, due diligence also reviews the overall strategic planning behind the project - the development programme, the project management structure, the qualifications and experience of the project team, and the contingency plans in place to manage risk. Strong project management capability and a well-organised development team are factors that materially improve a project's chances of securing finance.

Preparing for Due Diligence

The most effective way to prepare for due diligence is to anticipate lender requirements from the earliest stage of project development. Projects that arrive at the financing stage with complete feasibility studies, independent site appraisals, environmental assessments and a robust financial model are significantly more likely to secure finance quickly and on favourable terms. Prime Project Fund can advise project owners on what due diligence documentation is needed for their specific project type and region.

Apply for Project Finance

If you are ready to seek project finance from $10 million and have completed the necessary due diligence documentation, Prime Project Fund invites you to submit your project details through our Funding Application.