• Cash Flow-Based Lending: The project’s anticipated cash flows are the primary source of repayment. Lenders assess these cash flows to determine the loan amount and terms.
• High Risk and Returns: Since lenders rely heavily on project success, the risk is higher. However, interest rates may reflect this increased risk.
• Long-Term Nature: Project loans usually span over 10-25 years, especially for infrastructure projects.
• Milestone-Based Disbursements: The loan is often disbursed in stages, depending on the completion of specific milestones (e.g., completion of construction phases).

The life cycle of a project loan generally includes the following stages:

• Development and Planning: The sponsors create a comprehensive business plan, including feasibility studies and financial models. Loan applications are made at this stage.
• Financial Closure: The project reaches financial closure when the lenders agree to provide the loan, and all terms, conditions, and financial arrangements are finalized.
• Construction Phase: Funds are disbursed in tranches during the construction, depending on completion of agreed-upon milestones.
• Operational Phase: Once the project is operational, loan repayments begin. The cash flows generated by the project are used to repay the debt.

• Non-Recourse Nature: Limits the sponsor’s exposure to risk, as the loan is primarily secured by the project’s assets and revenues.
• Leverage: Allows project sponsors to undertake large-scale projects without significant up-front equity investment.
• Access to Capital Markets: Project loans can be syndicated or securitized, allowing sponsors to tap into a broader pool of capital.