Both structures raise debt for a project. The difference is where the debt sits, what the lender can claim, and how the loan is priced.
Where the debt sits
Corporate finance lends to the company. The lender relies on the company balance sheet, its existing cash flows and its broader asset base.
Project finance lends to a dedicated project company. The lender relies on the project cash flows and assets, with limited or no recourse to the sponsor.
Recourse and security
Corporate debt usually carries recourse to the borrower and may be secured across the business. Project debt is secured over the project assets, accounts and contracts, and the sponsor’s exposure is limited to its equity and any completion support.
Tenor and covenants
Project finance can support longer tenors because the debt is matched to the asset life and contracted revenue. It also brings a tighter covenant package: debt service cover, reserve accounts, distribution locks and reporting.
When project finance fits
Large, discrete assets with contracted or highly predictable revenue are natural project finance candidates. Infrastructure, energy, transport and industrial projects often fit. The structure is also useful when the sponsor wants to keep the debt off its own balance sheet.
When corporate finance fits
Smaller expansions, working capital, equipment and diversified businesses are often better served by corporate or asset finance. The documentation is simpler and the lender can rely on the whole business.
Hybrid structures
Many East African projects sit between the two. A corporate borrower may use project finance for a new asset, or a project company may rely on a sponsor guarantee during construction. The right answer depends on the asset, the sponsor and the lender group.
If you are deciding which structure fits, start a conversation with EACDA.
