Various soft terms loans are available to financing projects in foreign countries involving small, medium and large size enterprises which are economically viable. Loans include both start-ups and expansion projects.
These loans are offered on a soft term basis with a considerable grace period for repayment and at a very low interest rate unlike the other conventional lenders’ rate which include the commercial banks, investment bank and other financiers.
The loan is being issued by the multilateral (financial institution formed by various countries either on regional or global level) and bilateral (financial institution formed by a country to carry out projects in a foreign country of interest as part of the two country’s bilateral cooperation).
Both the multilateral and bilateral aid agencies as a rule, encourage trade cooperation among members countries. Consequently, joint venture partnership is encouraged through managerial and technical transfer among member states either on a multilateral basis or on bilateral cooperation involving the two countries.
It is required that project are identified through presentation of business plan, pre-feasibility and feasibility studies in order to determine the viability of the project. As a rule, both the multilateral and bilateral aid agencies set up project development facility offices where independent management consultants are employed to evaluate project proposals submitted for consideration.
Since loans offered by the various development aid agencies are on a soft term basis for repayment, they lay emphasis more on the cash flow of the proposed project known as the debt serving factor than the collateral used for security. As the project requires a managerial and technogical transfer, the borrower presenting the proposal must also include detailed informatation of the technical and the managerial experts who had considerable years of experience in the field of expertise which will include the educational and professional experience of the key staff to be used. The fact is that if the technical or the managerial partner employed is not qualified then the project will fail and all the investor will suffer lost including the lenders.
In most cases, project proposal are sent to the project development offices and in most cases send out their staff for a fact finding mission and during trade fairs in order to identify viable projects they can lay their hand upon. During their mission, they could get in touch with investors who already had a project proposal seeking managerial/technical joint venture partners. The staff at the project development facility offices also assist in identifying joint venture partners and financiers
In order to encourage investors reaching out to investors in foreign countries of interest , the project development facility offices do provide grant to cover overseers’ traveling expenses and as well as investors coming to meet with their nationals in their countries seeking for the technical/managerial partners after examined the project documents through correspondence.
Some of these development aid agencies provide grant on a none refundable basis to cover the cost of pre-feasibility and feasibility studies up to 50 percent of the cost of studies charged by independent Management Consultants as part of the development aid package while others issue out soft term loans to finance such studies up to 50 percent of the project cost which may not be available from the conventional lenders such as the commercial and investment banks and other lenders charging a higher interest rate unlike the development aid financiers.
In most cases, such development agencies do issue out loans to countries either base on multilateral or bilateral cooperation to financial intermediaries who re-lend to investors who then use it to finance feasibility studies of their proposed projects. In this case, investors will be required to present a project profile which will serve as a summary report of the entire project and then be assed either by the financiers or the intermediary lender in order to determine if a detailed study will be required. The feasibility study loans will be approved if the project proposal is satisfactory.
Some investors require that the cost of the feasibility studies be added up onto the project’s cost and then be paid to the lender of the feasibility study when the loans is approved by the other lender(s) covering the entire project cost.
Individual development financier may only cover 50 percent of the entire project cost even though the project would be 100 percent viable. As a required, a co-financing arrangement is always made involving one or two other financiers each with individual terms of repayment.
The investor providing the technical/managerial assistance may be required to finance 30 percent of the cost; while the local investor known as the sponsor will provide the reaming sum who could obtain a loan from another lender in order to finance his part the cost involved.
However, individual country has her own expatriate quota as regards the level of participation involving foreign investors and base on the type of project involve. In some projects, the foreign investor may be given 100 percent ownership, other 60 percent and other 40 percent ; the lower the quota for the foreign investor, the higher level of investment participation for the citizen in the project country.
Banks and other international financiers provide detailed information to guide investors seeking to participate in project overseas .The foreign embassies and consulates in your country could also provide helpful information on any county of your choice and will provide information about trade regulations and other investment tips
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