Project finance is the analysis of the complete life-cycle of a project. Typically a cost-benefit analysis is used to determine if the economic benefits of a project are larger than the economic costs. The analysis is particularly important for long-term projects of Growth CAPEX. The first step of the analysis is to determine the financial structure, a mixture of debt and equity, that will be used to finance the project. Then identifying and valuing the economic benefits of the project will produce, and determine if the benefits outweigh the costs.
Project finance is the funding (financing) of long-term infrastructure, industrial projects, and public services using a non-recourse or limited recourse financial structure. The debt and equity used to finance the project are paid back from the cash flow generated by the project.
Project financing is a loan structure that relies primarily on the project's cash flow for repayment, with the project's assets, rights, and interests held as secondary collateral. Project finance is especially attractive to the private sector because companies can fund major projects off-balance sheet.