1. It accommodates off balance sheet financing of the project, which will not influence the credit of the shareholders or the government contracting authority, and moves a portion of the project risks to the lenders in return for which the lenders acquire a higher edge.
  2. A project sponsor has no or limited liability to the lenders for breach or default, and the lender’s primary recourse is to the pledged collateral. Therefore, a project sponsor’s financial risk is constrained to the measure of capital commitment to the borrower. This component helps a project accomplish monetary freedom and shields a project sponsor’s assets from the inconveniences of the project.
  3. As a general concern, project financing systems may permit value providers off-balance sheet treatment of liabilities relating to the project, including the debt.
  4. Project financiers evaluate a project based on the merits of the individual project, including the risk allocation. Therefore, the financing terms are often more favourable to a project sponsor than if the lenders were making decisions based upon the project sponsor’s credit.
  5. In project finance transaction, risk is shared among all of the project participants. This risk sharing encourages project participants to perform well and improves the chances of success of the project.

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