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The Beginner’s Guide to Accessing Project Finance

Project finance is available to only the biggest players, right? Wrong. If you develop an air-tight proposal and have the backing of a strong sponsor, you could be South Africa’s next big project entrepreneur.

Nadine Todd




What is Project Finance?

Project finance differs from other forms of funding primarily because it is based on the future cash flow of an enterprise that is housed in a ‘special purpose vehicle’ or SPV. This is normally a company that has one specific purpose, be it a mine, industrial plant or factory.

Unlike other loans, which are based on a balance sheet (the lender’s income and assets), an SPV needs to start making money before it can begin repaying its loans. First, this can take years, and second, there is no guarantee the project will bring in cash unless every eventuality is looked at in the feasibility and planning stage of the project, and every risk is mitigated. The financier needs to be assured that the project can make the cash the developers and operators say it can. This is what makes a project bankable.

A large focus

By their very nature, projects are large. Some form of infrastructure needs to be built, engineers and environmental impact studies must be involved and often rights and concessions need to be secured. The loans involved in projects of this nature range anywhere from R70 million to the upper hundreds of millions, and banks will not even look at small projects asking for small amounts.

“There simply is no point for banks to finance small projects,” explains Johan Greyling, a director at Cresco Project Finance. “Banks involved in project finance will hire a team of experts with a deep understanding of the industry in question to go through the proposal with a fine-toothed comb. This is an expensive process and whether the project is asking for R5 million or R500 million, the team needs to do the same amount of work. It’s just not feasible for banks to get involved in small projects – the margins of return are too low.”

Sharing the risk

No financier will grant a 100% loan. Financial institutions will simply not take on the risk of a project alone. Both development finance institutions (DFIs) and commercial banks require the lender to have skin in the game – in other words, some form of equity commitment.

“The logic behind this is simple: before the bank loan gets defaulted on, shareholders must feel the pain,” says Greyling. “The developers are often the only people who can ensure the project’s success, which, from the bank’s point of view means they should also be at risk, and therefore driven to resolve any problems.”

Lenders will generally look to share the project’s risk with the sponsors and other financial partners. It is not unusual to have multiple financiers involved in a project. Luckily however, it often just takes getting one financier on board for others to follow suit. The Industrial Development Corporation (IDC), for example, will identify other suitable international and local DFIs, commercial and merchant banks and even export credit agencies as potential participants in the deal. A commitment from one reputable financier may often serve to convince others to come on board, particularly since the risk is being shared.

Related: Funding Support for Black Entrepreneurs

Common misconceptions in Project Finance

Getting a project off the ground often seems complex to entrepreneurs. The nature and size of project finance, and the fact that it involves millions, if not hundreds of millions, of rands, makes it seem unattainable. Add to this the fact that project developers and sponsors sometimes believe that cash available to finance projects is hard to come by, and project finance seems elusive at best – if not impossible to obtain.

But financiers are telling a very different story. One of the Industrial Development Corporation’s (IDC) core principles is the development of new entrepreneurs. So why do entrepreneurs involved in project development believe that project finance is unavailable? According to Anthony Sykes from the International Project Finance Association (IPFA), there is an acute lack of bankable projects in Africa: not an acute lack of finance, but rather of projects that are worthy of being financed.

“Project finance is often viewed as higher risk than other finance,” says Cresco’s Johan Greyling. “This isn’t really true. Yes, there are risks involved in financing a project, largely because it is years before the project can actually start making money and paying off its loans. There is also a certain amount of crystal ball gazing that needs to take place – the sponsors of the project and the financiers need to predict how much money the project can make, and gear the loan accordingly. It’s a very precise science. “Because of this, every possible component of the project is looked at, and each risk mitigated, leaving no room for error. That makes project finance less risky than it’s often assumed to be – but much harder to receive.” For those who put together an air-tight project finance proposal, based on a solid feasibility study in which all risks are mitigated, and have a strong sponsor backing them, project finance doesn’t need to be a pipe dream – it can be a reality.

The Key Players in Project Finance


Like any venture, projects are all about spotting the right opportunity at the right time. What will the next big commodity boom be? Is South Africa ready for a slew of biofuel and renewable energy projects? The entrepreneur who not only recognises the possibility of a project, but is able to put together an exciting and commercially viable project, with the risks allocated and addressed appropriately, will be able to access the holy grail of the funding world: project finance. As an entrepreneur, if you have the vision and the patience to see a project through, there is no reason why you shouldn’t be successful.


Finding the right sponsor or sponsor group is perhaps the most important step for an entrepreneur looking to secure project finance. The project developer always needs to provide an appropriate level of own-capital to attract project finance loans from financiers.  A sponsor’s expertise and experience will carry weight with the banks.

So who are these sponsors? Essentially, they identify an opportunity and take advantage of its commercial realisation. Sponsors could be big local and international groups that sell the equipment or supply the services for big projects, be it the technology needed to put up a solar plant, or the engineers to design and build a processing plant. They benefit from projects, which is why they are always on the lookout for a good opportunity. For the entrepreneur, the individual might be small, but the sponsor group is big. Sponsors lend weight and much-needed industry experience to the idea, one of the first things financiers look for in a deal.


Depending on the project, developers can approach development finance institutions (DFIs) such as the International Finance Corporation (IFC), which is the commercial arm of the World Bank, the Industrial Development Corporation (IDC) and the Development Bank of Southern Africa (DBSA), or commercial banks, and export credit agencies or funds.

Development Finance Institutions

DFIs are financial institutions established by governments with specific mandates to develop and promote key sectors considered to be strategically important to the overall socio-economic development objectives of various countries.

These strategic sectors include agriculture, small and medium enterprises (SMEs), infrastructure, maritime, the export-oriented sector as well as capital-intensive and high-technology industries. Many DFIs belong to global or continent-based initiatives (such as the World Bank), and will operate in other countries or across various continents.

Commercial banks

Most commercial banks have a project finance division and are extremely good at evaluating feasibility studies. Approach banks early in the project finance cycle to judge whether there is interest in your project, and which banks have an appetite for the sector you are working in.

Related: All You Need to Know About Government Grants

Structuring Your Deal

The rules for project finance are the same globally, which means banks and DFIs from around the world can be involved in African and South African projects. It also means that local projects are competing globally for funds. Proposals have to be air-tight in order to receive funds. Whether a developer approaches a DFI or commercial bank for finance, there are certain criteria that must be met in order to obtain finance. Here’s what financiers are looking for, and how to give them what they want.

1. Get a sponsor
The first thing an entrepreneur who has recognised an opportunity needs to do is engage with a large operator in the sector to be the project’s sponsor. “Many emerging players encounter a barrier to entry into this field because the initiator of a project needs to be a strong player,” says Charles Marais, project finance expert and a consultant at Eversheds law firm. “The only way this can be circumvented is for the entrepreneur to partner with a strong sponsor.

“Once an entrepreneur has recognised a good idea or a gap in the market, he should find a sponsor who will benefit from the project being commissioned,” he explains. “Project finance is all about cash and risk. These risks can loosely be categorised into three parts: environmental risks, construction risks and operational risks. Large sponsors probably have experience in recognising and mitigating these risks, so an entrepreneur who wants to get his project banked should get the experts in.”

Stephen Vermaak, principal investment officer, IFC, offers another reason why entrepreneurs should partner with sponsors: “The formation of partnerships between big industry players with experience and up-and-coming entrepreneurs is good for the industry as a whole because it brings new skills into the market place, but for the entrepreneur, it really is a way of accessing finance,” he says. “Over 50% of our financing is to existing clients. If you get finance once, chances are you will receive finance on your next project too, with less effort needed than the first time round. Partnering with a big sponsor puts you on the radar of financiers.”

2. Put together an expert team
Finding the right sponsor is only the first step however. According to Greyling, lenders are reliant on the project generating cash flow, which means they are interested in everything in your business, from where you are sourcing your electricity, and who your suppliers and buyers are, to the costs of the process of designing, building and finally running your project. They evaluate everything.

Many entrepreneurs misjudge the costs involved in the early stage development of a project. Engineering and design costs, environmental studies and management plans, raw material procurement and negotiation, power supply, operating and logistical regimes and getting the documentation watertight are all lengthy and expensive processes. “But without getting all these aspects right from the beginning, the project won’t be financed,” says Greyling. “The best way to get your project right from the word go is to involve experts and advisors. This includes engineers, architects, consultants and lawyers.”

Marais agrees. “It takes a team to compile a quality proposal, with different experts addressing different areas,” he says. Greyling advises approaching financiers early. “Show them the deal and the structure,” he says. “Test their interest and create an appetite for the deal, and while you are doing this, you can extract their main concerns and work on them.”

There is no point in approaching the banks until a proper team is in place. “On the other hand, many developers don’t approach professionals until late in the process because they are trying to save money,” says Marais. “The problem with this approach is that by that stage you either haven’t maintained the bank’s appetite because there were problems with the packaging of the deal, or poor documentation actually sets you back six months or more when the banks return your proposal for reworking.”

Project documents are what make a project come together because they capture the agreements that the project is based on, including operator, construction and supplier agreements. They make projects work. If an entrepreneur really cannot afford to engage lawyers because the feasibility stage is simply too expensive, Marais suggests negotiating with the firm in question. “As in other areas, fees can be negotiated and budgeted for. Some firms may even be prepared to work on risk for a portion of their fees,” he says.

Either way, don’t skimp on your team if you want your project financed. Just as financiers share the risk of funding a project, so too does a team of experts run a higher chance of success by covering all possible eventualities. Advisors bridge the gap between a project and a bankable project.

3. Conduct an air-tight feasibility study
The feasibility stage is about three things: the financial model, which highlights risk and how risks will affect servicing the project’s debt, sponsor support, and an independent expert/technical report. This can take at least eight months to complete. Legal, commercial, financial structuring and engineering decisions are made during this stage based on the team doing its due diligence and extensive research.

“The feasibility stage of a project is expensive,” explains Greyling. “It takes on average eight months to complete this stage. During this time, engineers, lawyers and consultants need to be paid, and  studies such as environmental impact assessments (EIAs) must be conducted.“Many entrepreneurs – particularly first-timers to project finance – do not realise how expensive the feasibility stage can be. DFIs can be approached to help, but banks typically will only get involved once the project is proven and bankable, in other words, once the feasibility stage is complete. “Never expect the financier to complete your feasibility with their due diligence,” he warns. “They have hundreds of proposals to work through and their interest will lie in those deals that offer the least resistance, where the team has done their work and all the banks need to do is check that the commercial viability stacks up.”

  • Gearing

Gearing refers to the level of debt that a project can realistically afford to repay. Any uncertainty around a project’s revenue line will impact the level of gearing. Take mining commodities as an example. “Commodities prices are generally cyclical,” explains Greyling. “If the project depends on the sale of a commodity, the gearing will be adjusted accordingly and the sponsor might have to put in more equity to mitigate the risk of not being able to meet the loan repayments while commodity prices are at the bottom end of a cycle.”

This takes careful study and planning during the feasibility stage, because the sponsors need to be able to prove exactly how much of the commodity can be mined, at what grade, and what the market’s appetite is for the commodity. The same would be true for renewable energy, manufactured goods or even telecoms services. What is the market’s appetite, and how much of this appetite does the project provide for, and at what cost? The gearing of the project will be based on assumptions around these issues.

  • Mitigating Risks

Marais insists that properly understanding the risks involved in projects is the most important part of the feasibility study. “Cash and risk, that’s all a project is really about,” he repeats. To understand the pitfalls of a project, research and due diligence are vital. Simply recognising the risks is not enough though. Each of those risks must be mitigated. If they are not, the project will not receive finance.

According to Greyling, project risk can generally be broken down into 16 core categories. Each of these categories should be carefully evaluated and the project’s sponsors must present financiers with action plans of how each potential risk can be mitigated. This will then affect the project’s bankability. Of the risks cited, the most important is probably completion risk. What can stop the project from being completed and commissioned (and therefore making money), and how can the team ensure that this does not happen? It is vital that this is addressed in the funding proposal.

“The whole risk mitigation and project finance process is designed to ensure cash flow,” explains Marais. “Once this process is complete and the project is given the green light, cash must come how and when it is expected to. If that happens, the project makes money, the lenders get their return on investment and the sponsors get their project.”

4. Packaging your proposal
Sponsors seldom ask someone else what is wrong with their project or proposal when they fail to receive funding, although often this would allow them to see the gaps in their plan which, once filled, might lead to a successful application. Seek advice from consultants, lawyers and financiers involved in project finance before putting together a proposal. An appealing proposal that meets project finance criteria can get you a ‘yes’ first time round.

Accessing project finance

  • Seek expert advice

Charles Marais, consultant, Eversheds

“Get your advisors, lawyers and bankers involved in the project as early as possible. You can end up losing valuable time if things are not done properly from the word go. It is essential to understand exactly what the lender’s concerns are about the project and also to whet their appetite for the deal. Advisors also tend to be experienced and dispassionate, whereas entrepreneurs who have poured everything into their idea may be subjective and emotional. Expert advice can be invaluable in these situations. And don’t be too greedy. Many deals are delayed or fall through because the sponsor thinks the lenders are being unreasonable in their requirements. The most important thing is to get your project financed. Once the project has worked through the start-up and early operating risks, refinancing is always a possibility.”

  • The power of networking

Paul Runge, MD, Africa Project Access

“There is no standard application for project finance because the lenders are judging you as an entrepreneur. The project should speak for itself and you should know and understand the industry intimately. In this, there is no substitute for ‘street wisdom’. You need to learn as you go along, so pay attention, speak to people in the industry, financiers, lawyers and experts and network as much as possible. Understand how project finance works.”

  • Be realistic

Johan Greyling, director, Cresco Project Finance

“It’s vitally important to have a business development budget, realistic expectations around the project’s timeline and a clear view of where your equity is coming from. Your shareholder grouping should include participants that can give the requisite equity contribution for the project as well as providing operational and execution capacity. Never underestimate the value of a capable and passionate project director. Also remember that lenders are not there to sort out your problems. They merely look at viability.”

  • Get your project off the ground

Stephen Vermaak, principal investment officer, IFC

“Package your proposal in a form that the bank can evaluate. The good ideas and knowledge of the sponsor and team should be clear. It is not the bank’s job to sift through the proposal for the pieces that are of value to them. Put time and money into your planning and research and present a proposal that is simple to evaluate. Don’t be too greedy on your first project. Concentrate on getting the project off the ground. Once you’ve got experience and have proven yourself to the financing community, it will be easier to secure financing the second time round, and you will be in a position to negotiate more favourable terms.”

  • Always drive bankabilty

Conrad Hefer, Cresco Project Finance

“We want to be able to determine from the word go whether the project is bankable. This means identifying key issues that drive bankability. As a project promoter you need to make the financial modelling clear in the proposal. After all, as banks we make credit decisions, so we need to be given realistic plans that will get a project to financial close. This means the sponsors need to get the efficiencies right in order to break ground. Do not over-inflate the project’s worth to make it seem more attractive. This will ultimately achieve nothing.”

  • Getting the right sponsorships

Michael Fischer, director, DEG (German DFI)

“Don’t under-estimate the power of corporate sponsorship. If the entire project is based on one or two people, the risk is much higher for the financier. What happens to the project if something happens to the partners? It will be dead in the water. Big corporates can always keep the project going, making the risk much smaller for the lenders.”

Useful contacts

IFC – The International Finance Corporation is a member of the World Bank. Its mandate is to provide investments and advisory services to build the private sector in developing countries. Visit for more information.

DBSA – The Development Bank of South Africa is one of several development finance institutions in South and Southern Africa. It plays the multiple role of financier, advisor, partner, implementer and integrator to mobilise finance and expertise for development projects. Visit for more information.

IDC – The Industrial Development Corporation is a self-financing, state-owned national development finance institution that provides financing to entrepreneurs and businesses engaged in competitive industries.Visit for more information.

IPFA – The International Project Finance Association is the only international, independent, not- for-profit association dedicated to promoting and representing the interests of private sector companies involved in project finance and Public Private Partnerships (PPPs) throughout the world. Visit for more information.

Nadine Todd is the Managing Editor of Entrepreneur Magazine, the How-To guide for growing businesses. Find her on Google+.

Government Funding

The Definitive List Of South African Business Incubators For Start-Ups

Are you looking for an incubator to ensure the sustainability of your start-up? This comprehensive list of South African incubators will set you in the right direction.

Nicole Crampton



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70-80% of small businesses don’t survive their first year, says Proudly South African CEO, Eustace Mashimbye, with only 9% surviving 10 years. Incubators were developed to reduce the chances of failure of start-ups by offering sustainable and fundamental entrepreneurial support.

Incubators enable entrepreneurs and innovators to find the necessary support and resources to build and maintain a successful start-up. An incubator can offer you:

  • A creative space to work out and discuss every aspect of your business
  • More resources and experience than you have when starting out
  • The opportunity to develop a network of other entrepreneurs and start-ups to sustain your business in the future.

“Getting involved with an incubator requires more than simply filling out an application. You need to get clear about which type of incubator would be the best fit. One of the most damaging mistakes a brand-new company can make is choosing one that doesn’t thoroughly meet its needs,” explains Nav Athwal, founder and CEO of RealtyShares.

Here are 58 South African business incubators for start-ups and what they can offer you:

  1. Global Cleantech Innovation Programme for SMEs
  2. Red Bull Amaphiko Academy
  3. Aurik Business Accelerator
  4. Transnet Enterprise Development Hub
  5. Injini
  6. The Techstars Foundation
  7. Anglo’s Zimele
  8. Shanduka Black Umbrellas
  9. SEDA Ekurhuleni Base Metals Incubation Programme
  10. BizQube
  11. Silulo Business Incubator
  12. Sw7
  13. Maxum Business Incubators
  14. Mpumalanga Stainless Initiative
  15. Edge Growth
  16. Smorgasbord
  17. MASDT
  18. Ignitor
  19. Timbali Technology Incubator
  20. Raizcorp
  21. OneBio
  22. SABizHub
  23. 88mph
  24. Enterpriseroom
  25. Chemin
  26. eKasiLabs
  27. New Ventures Studio
  28. Thomson Reuters Labs
  29. Seda Automotive Technology Centre
  30. eGoliBIO
  31. Meltwater Entrepreneurial School of Technology
  32. Seda – Agricultural & Mining Tooling Incubator
  33. Spark* South Africa
  34. Garden Route ICT Incubator
  35. Seda
  36. The Khayelitsha Bandwidth Barn
  37. Furntech
  38. Biofuels Business Incubator
  39. French Tech
  40. BioPark Business Incubator
  41. The Founder Institute
  42. Seda NMB ICT Incubator
  43. Tshimologong Precinct
  44. LaunchLab
  45. Softstart BTI
  46. RLabs
  47. African Rose
  48. The Grindstone Accelerator
  49. Riversands Incubation Hub
  50. mLab Southern Africa
  51. South African Renewable Energy Business Incubator
  52. Enterprise Elevator
  53. The Cape Innovation and Technology Initiative
  54. Endeavor
  55. The Awethu Project
  56. DACT
  57. The Creative Counsel incubator programme
  58. Green Pioneer Accelerator
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Government Funding

Investment Support For Black Business

Business development services to improve core competencies, managerial capabilities and competitiveness.

Monique Verduyn




The department of trade and industry’s Black Business Supplier Development Programme is a cost-sharing grant, which offers support to black-owned enterprises in South Africa. The DTI contributes 90% of the cost of a project and the applicant 10%.


The programme aims to fast-track existing SMMEs that exhibit good potential for growth, grow black-owned enterprises by fostering linkages between black SMMEs and corporate and public sector enterprises, complement current affirmative procurement and outsourcing initiatives of corporate and public sector enterprises, and enhance the capacity of grant recipient enterprises to successfully compete for corporate and public sector tenders and outsourcing opportunities.

Qualifying criteria


The business must be majority black-owned (50 plus one share) and have a significant representation of black managers on the management team. The maximum annual turnover is R12 million per annum, and the business must have a trading history of least one year. Businesses can qualify for a grant to the maximum amount of R100 000. The requested amount should not exceed 25% of the entity’s previous year’s turnover.

To apply

Applications must include a detailed business plan, financial statements, turnover projections and a tax clearance certificate.


Go to

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Government Funding

Expansion Funding Options For Your Growing Business

Growth can put an enormous strain on the cash flow of your business. Luckily, there are financing options available to you if you know where to look, enabling you to keep that growth on track.

Darlene Menzies




One of the first things you notice when your business starts to grow is that your costs shoot up, while your profit doesn’t immediately follow. Growth can put an enormous strain on the cash flow of a company and business owners often make the mistake of financing growth from their cash flow — which is like using your credit card to finance your home renovations.

Doing things this way results in unnecessarily high financing rates and challenging repayment terms, which can also leave you vulnerable to a sudden cash flow crisis without the time required to line up financing.

Financing business expansion requires planning, especially for fast growing companies.

When planning for fund raising, consider applying for sufficient funds to cover the cost of existing debt and the cost of the expansion. When it comes to business expansion funding, the total amount of the finance required will determine which finance options are most suitable.

If your finance requirements are relatively low and your cash flow history is good, consider a term loan or business overdraft to fund your growth while you work on increasing your sales to meet your growth expenses. If your expansion needs include additional equipment or machinery, asset finance is available.

Related: 3 Ways For Social Entrepreneurs To Access Fundraising

However, if your SME is growing rapidly and you want to enter new markets, scale your team or undertake new product development, look at longer term funding solutions. Equity finance is the most common option for this kind of funding requirement and there are also government funds that cater for business expansion.

Government Funding Options

Government lending agencies provide a range of finance options for SMEs to foster growth in high priority sectors, specific geographic areas and to promote economic inclusion for previously disadvantaged people. The finance options include incentivised financing, cost sharing options, equity, loans and grants.

Government has partnered with Finfind, which has an up-to-date database of all the government funding offerings available to SMEs.

If your business profile or funding need matches any of the government funds, Finfind will match you with the offering and provide you with the details of what is required to apply.

Equity Finance

Equity finance refers to the sale of a percentage of ownership in your company in return for business expansion funds. One of the biggest benefits is that these lenders are often prepared to fund businesses that are not currently profitable, but have the potential to generate large returns. As equity funders take more risk than traditional financiers, they expect a higher rate of return on their investment from businesses that can scale into large markets and show highly profitable future returns.

In the SME market, early-stage equity finance is usually provided by venture capital companies (VC), while mid-stage or larger expansion funding requirements for medium size enterprises are provided by private equity funds or bank loans. VCs look for businesses with a strong founder, that have proven product market fit, a team to execute the business plan and a robust business model showing strong future returns. Funding amounts usually vary from R1 million to R20 million.

Related: What Type Of Growth Funding Do You Really Need?

What Funders Want


Funding applications require preparation, including a detailed business model that outlines expansion plans and makes a compelling case for investment.

CVs of key staff will be important as well as an organogram that shows the impact of the expansion on your team, detailed projected income and expenses, historical, audited financial statements, bank statements for the business’s bank account/s, tax clearance certificate, and personal statements of assets and liabilities for all owners as well as company and tax registration documentation. Keep an electronic folder with this documentation and update it monthly so that you can access it whenever it is needed.

If the initial funding meetings go well, the potential funder will perform a due diligence where the financials, the business model and its assumptions and projections will be scrutinised. They may interview some customers and your key staff members. Funders are especially interested in the founder and team running the business, as they are responsible for ensuring that the projected growth is realised. They look for experience, deep knowledge of the industry and operational competence.


Finfind is SA’s leading access to finance solutions for SMEs. This revolutionary online platform links finance seekers with matching lenders, providing easy access to over 200 lenders and over 350 loan options. Finfind is supported by USAID and sponsored by the Department of Small Business Development.

Go to to find the business finance you need. It’s free and easy to use.

Related: The Ups And Downs Of Borrowing From The Bank

embedded-funding-expansion-funding-options-for-your-growing-businessGet Funded

  • Do your homework: Each equity fund has a clear investment strategy. Familiarise yourself before engaging.
  • Educate yourself: Get to know the equity finance terminology and what to expect during the various stages of the deal process.
  • Develop an exit strategy: This is a common question and an important issue for funders.
  • Consider alternative funding: Can your expansion be funded with alternative or cheaper sources of finance that do not require giving up shares? Keep in mind, though, that the right investors bring more than money. They provide expertise and access to networks that can expedite your expansion plans.

Lastly, while you don’t always get the luxury of choice, do your best to partner with people you will enjoy working with, it can be a long marriage.

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