DHOLE PATIL EDUCATION SOCIETY’S INSTITUTE OF BUSINESS MANAGEMENT
DHOLE PATIL ROAD, PUNE- 411001.
A PROJECT REPORT ON ‘PROJECT FINANCING’ IN “SYNERGY FINANCIAL SERVISES”
PUNE.
SUBMITTED TO DPES/IBM
2008-2009
PROJECT GUIDE PROF. MRS. AMEYA NISAL
SUBMITTED BY MR. HANUMANT HINGE
MPBA- SECOND YEAR ROLL NO. 05
DHOLE PATIL EDUCATION SOCITY’S INSTITUTE OF BUSINESS MANAGEMENT
DHOLE PATIL ROAD, PUNE- 411001.
DATE: -CERTIFICATE
This is to certify that Mr. Hanumant Dnyaneshwar Hinge, student of DPES/IBM MPBA– 2nd year, Roll no. 05, has completed his project work entitled “PROJECT
FINANCING” IN “SYNERGY FINANCIAL SERVICES, PLANET HOME, M.G. ROAD, PUNE.” as a participation in fulfillment of the Master Program in Business Administration. as per the syllabus of DPES/IBM. (2008-2009). I further clarify that; the work has been carried out under my guidance.
Prof. Mr. Ameya Nisal.
SYNERGY FINANCIAL SERVICES
85, M.G. ROAD, 2ND FLOOR, PLANET HOME, CAMP, PUNE-411001.
DATE:
-TO WHOM SO EVER IT MAY CONCERN
This is to certified that Mr. Hanumant Dnyaneshwar Hinge MPBA. II year, student of Dhole Patil Education Society’s, Institute of Business Management has been successfully completed his Project Report with, “SYNERGY FINANCIAL SERVICES” Pune, and he has worked in our company and collected self information.
During the training, he has been given the project titled, “PROJECT FINANCING.” He had put excellent effort under the guidance of Mr. Shridhar Shinde (Partner.) During the tenure of project work he has been observed to be sincere & with good learning ability.
We wish him success in life.
For Synergy Financial Services. Mr. Shridhar Shinde
(Partner) PUNE.
I take this an opportunity to extend my sincere thanks to “Synergy Financial Services” for offering me a unique platform to earn exposure and earn knowledge in the field of finance and learn the day-to-day activities that are carried out in the company.
I am thankful to Mr. Shridhar Shinde (Partner) and Mr. Ulas Ranade (Sr. Consultant of synergy financial services) and all employees of synergy financial services for helping and guide to prepare the project report.
With immense pleasure, I express my deep sense of gratitude and thanks to my project guide Prof. Ameya Nisal in addition, for his interest, encouragement and valuable guidance during the project work.
I would like to thanks to, Mrs. Gauri Dholepatil (director of institute of business management, Pune) for giving me an opportunity to complete this project.
MR. HANUMANT HINGE.
SR. NO. CHAPTER NAME PAGE No.
1. Executive Summary 6
2. Introduction 7
3. Overview of the company 8 4. Objective of the Project 11
5. Literature 12
6. Research Methodology 61
7. Case Study 63
8. Conclusion 98
EXECUTIVE SUMMARY
The main purpose of the project is to understand the whole concept of Project financing, and its methods and needs of project financing in the form of different committee recommendation and methods.
To know the needs and methods of project financing for term loan and working capital loan in small- scale industry as well as large-scale industry and various guidelines issued by the RBI for banking sector for Project finance.
The project has been divided into two parts. In initial chapters of the project was given to general concept and fundamental principles for project financing, method of project financing, requirement of project financing in various types of industries, the finance requirement to the borrowers and the various approaches adopted by the borrowers for selecting the mode of financing. The later chapter covers various methods of project financing and its sub methods i.e. term loan and Working capital limit in project financing. Funding the requirement of the term loan and working capital by the following procedures of Credit Monitoring Assessment (CMA) for funding of short-term loan and long-term loan. And finally various committees’ recommendation and current scenario of the MPBF were elaborated in detail.
And the project includes the case study on Steel industry for which the procedure is actually applied to PQR steel Alloys Pvt. Ltd. and the details of projection is highlighted.
INTRODUCTION OF THE PROJECT FINANCING
Project financing has become one of the core activities of banks in the recent years. With the growth in the economy and the revival in the industrial sector coupled with the increasing role of private players in the field of infrastructure, more and more banks are entering into the project finance area. This examination is specially designed, in collaboration with the Institute for Financial Management and Research (IFMR), Chennai, to familiarize candidates with basic issues arising in financing projects, as well as risk analysis and risk mitigation methodologies with a specific emphasis on structured financing.
The financing of long-term infrastructure and industrial projects based upon a complex financial structure where project debt and equity are scope of the project financing.
Arranging short-term financing, controlling cash, managing accounts receivable, inventory management are function including in project financing of finance management. A thorough understanding and application of all these aspects is necessary to be able to maintain the optimum level of finance within the firm.
The requirement of the project financing is depending upon the nature of the business. The business may be small are large, but the requirement depend on the operation of the business it means the cycle of the business. If the operating cycle is longer the requirement of finance would be longer of the business.
According to the requirement financing agencies, companies and banks provided finance to the borrowers in the form of fund based and non-fund based.
Managing cash inflow and out flows efficiently for the optimum use of capital and to release the finance blocked in inventory and receivables constitutes the single largest problem have in business. As such the solution on this problem is that to borrowing the finance from Banks, financial institute etc. has increased tremendously in all aspects.
COMPANY PROFILE
‘SYNERGY FINANCIAL SERVICES’ IS A REGISTERED PARTNERSHIP FIRM IN RENDERING CONSULTANCY SERVICES TO CORPORATE IN DIFFERENT FACETS OF CORPORATE FINANCE. MR. SHRIDHAR SHINDEAND MR. MILIND KULKARNIARETHE PARTNERSAND PROMOTERSOFTHISFIRM.
Synergy financial services company and its Partners enjoy good reputation in business circle in and around Pune. The firm stands by integrity and commitment and strives to develop mutually beneficial thrilling relationship; the partners of the firm have rich experience in corporate banking, Investment banking, corporate finance and retail finance domain.
The firm is built on more than 20 years of direct consulting experience interacting with companies in and around Pune for understanding their business needs, formulating strategies and implementing them efficiently and effectively. The firm has amongst its clientele some of the leading Infrastructure, Real estate, Steel, Engineering, Educational institutes and trading companies in and around Pune. The firm has its focus on midsized corporate, SSI units and trading concerns.
The approach of synergy financial services company is on imparting the larger solution to corporate needs rather than mere isolate problem solving. This calls for developing long lasting business relationship and promoting mutual trust, and synergy financial services strive to stand by them.
The Present Business Domain of the Synergy Financial
Loan Syndication –
Term Loan, Working capital facility, short-term loan, and other financing needs of corporate from Banks, Financial institutions and private Investors.
Project Finance –
Financial Viability study, business plans and project report, financial Planning and syndication requirements.
Corporate Advisory services –
SWOT Analysis
Strengths
Both partners of the firm have vast experience in the field of finance.
The firm has strong customer base many of which are with the firms for last many years. Firms have good contact with in industry.
Good reputation in market.
Weaknesses
Firm does not put any efforts on marketing, which may help to grow the market.
The firm has partnership structure and hence inherits the limits associated with this kind of organizational structure.
Opportunity
Large chunk of company’s assignment comes from developers and industry is currently in boom, which provides opportunity for the firm to expand its business.
Threats
Similar types of competitors.
OBJECTIVES
To understand the concept of Project financing, it’s various components, methods and nature of project financing.
Another important objective is to analyze the various components of project financing, which is specifically used in borrowing the finance for the small-scale industry and large-scale industry. If focuses on the requirement and the procedures applied by the banks for assessing and sanction the loan.
It also studies the various guidelines issued and recommended by various RBI committees.
CONCEPTUAL FRAMEWORK
History of Project
Financing:-Limited recourse lending was used to finance maritime voyages in ancient Greece and Rome. Its use in infrastructure projects dates to the development of the Panama Canal, and was widespread in the US oil and gas industry during the early 20th century. However, project finance for high-risk infrastructure schemes originated with the development of the North Sea oil fields in the 1970s and 1980s. For such investments, newly created Special Purpose Corporations (SPCs) were created for each project, with multiple owners and complex schemes distributing insurance, loans, management, and project operations. Such projects were previously accomplished through utility or government bond issuances, or other traditional corporate finance structures.
Project financing in the developing world peaked around the time of the Asian financial crisis, but the subsequent downturn in industrializing countries was offset by growth in the OECD countries, causing worldwide project financing to peak around 2000. The need for project financing remains high throughout the world as more countries require increasing supplies of public utilities and infrastructure. In recent years, project finance schemes have become increasingly common in the Middle East, some incorporating Islamic finance.
The new project finance structures emerged primarily in response to the opportunity presented by long term power purchase contracts available from utilities and government entities. These long term revenue streams were required by rules implementing PURPA, the Public Utilities Regulatory Policies Act of 1978. Originally envisioned as an energy initiative designed to encourage domestic renewable resources and conservation, the Act and the industry it created lead to further deregulation of electric generation and, significantly, international privatization following amendments to the Public Utilities Holding Company Act in 1994. The structure has evolved and forms the basis for energy and other projects throughout the world.
What is the Project financing?
Definition.
Project financing involves non-recourse financing of the development and construction of a particular project in which the lender looks principally to the revenues expected to be generated by the project for the repayment of its loan and to the assets of the project as collateral for its loan rather than to the general credit of the project sponsor.
"Project finance" is a method for obtaining commercial debt financing for the construction of a facility. Lenders look at the credit-worthiness of the facility to ensure debt repayment rather than at the assets of the developer/sponsor. Farm biogas projects have historically experienced difficulty securing project financing because of their relatively small size and the perceived risks associated with the technology. However, project financing may be available to large projects in the future. In most project finance cases, lenders will provide project debt for up to about 80% of the facility's installed cost and accept a debt repayment schedule over 8 to 15 years. Project finance transactions are costly and often an onerous process of satisfying lenders' criteria.
“Project finance involves the creation of a legally independent project company financed with non-recourse debt (and equity from one or more sponsoring firms) for the purpose of financing a single purpose capital asset, usually with a limited life.”
This definition highlights the following features of Project Finance:
Project Finance involves creating a legally independent project company to invest in the project; the assets and liabilities of the project company do not appear on the sponsors’ balance sheet. As a result, the project company does not have access to internally generated cash flows of the sponsoring firm. Similarly, the sponsoring firm does not have access to the cash flows of the project company. In contrast, in Corporate Finance, the same investment is financed as part of the company’s existing balance sheet.
The purpose for Project Finance is to invest in a single purpose capital asset, usually a long-term illiquid asset. In contrast to a company, which may be investing in many projects simultaneously, a project-financed company invests only in the particular project for which it is created. The project company is dissolved once the project gets completed.
In Project Finance, the investment is financed with non-recourse debt. Since the Project Company is a standalone, legally independent company, the debt is structured without recourse to the sponsors. As a result, all the interest and loan repayments come from the cash flows generated from the project. This is in contrast to Corporate Finance where the lenders can rely on the cash flows and assets of the sponsor company apart from those of the project itself.
Project companies have very high leverage ratios compared to public companies. Esty (2003b) points out that the average project company has a leverage ratio of 70% compared to 33.1% for similar sized firms listed in the Composted database. The majority of project debt comes from bank loans. Esty (2005) shows that bank loans comprise around 80% of project debt.
It is a method of financing very large capital intensive projects, with long gestation period, where the lenders rely on the assets created for the project as security and the cash
Principal Advantages and Objectives of the Project Financing
1. Non-recourse. The typical project financing involves a loan to enable the sponsor to construct a project where the loan is completely "non-recourse" to the sponsor, i.e., the sponsor has no obligation to make payments on the project loan if revenues generated by the project are insufficient to cover the principal and interest payments on the loan. In order to minimize the risks associated with a non-recourse loan, a lender typically will require indirect credit supports in the form of guarantees, warranties and other covenants from the sponsor, its affiliates and other third parties involved with the project.
2. Maximize Leverage. In a project financing, the sponsor typically seeks to finance the costs of development and construction of the project on a highly leveraged basis. Frequently, such costs are financed using 80 to 100 percent debt. High leverage in a non-recourse project financing permits a sponsor to put less in funds at risk, permits a sponsor to finance the project without diluting its equity investment in the project and, in certain circumstances, also may permit reductions in the cost of capital by substituting lower-cost, tax-deductible interest for higher-cost, taxable returns on equity.
3. Off-Balance-Sheet Treatment. Depending upon the structure of a project financing, the project sponsor may not be required to report any of the project debt on its balance sheet because such debt is non-recourse or of limited recourse to the sponsor. Off-balance-sheet treatment can have the added practical benefit of helping the sponsor comply with covenants and restrictions relating to borrowing funds contained in other indentures and credit agreements to which the sponsor is a party.
4. Maximize Tax Benefits. Project financings should be structured to maximize tax benefits and to assure that all available tax benefits are used by the sponsor or transferred, to the extent permissible, to another party through a partnership, lease or other vehicle.
DISADVANTAGES. Project financings are extremely complex.
It may take a much longer period of time to structure, negotiate and document a project financing than a traditional financing, and the legal fees and related costs associated with a project financing can be very high. Because the risks assumed by lenders may be greater in a non-recourse project financing than in a more traditional financing, the cost of capital may be greater than with a traditional financing.
1. Sponsor/Developer. The sponsor(s) or developer(s) of a project financing is the party that organizes all of the other parties and typically controls, and makes an equity investment in, the company or other entity that owns the project. If there is more than one sponsor, the sponsors typically will form a corporation or enter into a partnership or other arrangement pursuant to which the sponsors will form a "project company" to own the project and establish their respective rights and responsibilities regarding the project.
2. Additional Equity Investors. In addition to the sponsor(s), there frequently are additional equity investors in the project company. These additional investors may include one or more of the other project participants.
3. Construction Contractor. The construction contractor enters into a contract with the project company for the design, engineering and construction of the project.
4. Operator. The project operator enters into a long-term agreement with the project company for the day-to-day operation and maintenance of the project.
5. Feedstock Supplier. The feedstock supplier(s) enters into a long-term agreement with the project company for the supply of feedstock (i.e., energy, raw materials or other resources) to the project (e.g., for a power plant, the feedstock supplier will supply fuel; for a paper mill, the feedstock supplier will supply wood pulp).
6. Product Off taker. The product off taker(s) enters into a long-term agreement with the project company for the purchase of all of the energy, goods or other product produced at the project.
7. Lender. The lender in a project financing is a financial institution or group of financial institutions that provide a loan to the project company to develop and construct the project and that take a security interest in all of the project assets.
A. Generally. As one of the first steps in a project financing the sponsor or a technical consultant hired by the sponsor will prepare a feasibility study showing the financial viability of the project. Frequently, a prospective lender will hire its own independent consultants to prepare an independent feasibility study before the lender will commit to lend funds for the project.
B. Contents. The feasibility study should analyze every technical, financial and other aspect of the project, including the time-frame for completion of the various phases of the project development, and should clearly set forth all of the financial and other assumptions upon which the conclusions of the study are based, Among the more important items contained in a feasibility study are:
Description of project. Description of sponsor(s). Sponsors' Agreements. Project site. Governmental arrangements. Source of funds. Feedstock Agreements. Off take Agreements. Construction Contract. Management of project. Capital costs. Working capital. Equity sourcing. Debt sourcing. Financial projections.
WHICH FIRMS IS NEEDS THE PROJECT FINANCE?
-A. Legal Firm. Sponsors of projects adopt many different legal firms for the ownership of the project. The specific form adopted for any particular project will depend upon many factors, including:
The amount of equity required for the project The concern with management of the project
The availability of tax benefits associated with the project
The need to allocate tax benefits in a specific manner among the project company investors.
The three basic firms for ownership of a project are:
1. Corporations. This is the simplest form for ownership of a project. A special purpose corporation may be formed under the laws of the jurisdiction in which the project is located, or it may be formed in some other jurisdiction and be qualified to do business in the jurisdiction of the project.
2. General Partnerships. The sponsors may form a general partnership. In most jurisdictions, a partnership is recognized as a separate legal entity and can own, operate and enter into financing arrangements for a project in its own name. A partnership is not a separate taxable entity, and although a partnership is required to file tax returns for reporting purposes, items of income, gain, losses, deductions and credits are allocated among the partners, which include their allocated share in computing their own individual taxes. Consequently, a partnership frequently will be used when the tax benefits associated with the project are significant. Because the general partners of a partnership are severally liable for all of the debts and liabilities of the partnership, a sponsor frequently will form a wholly owned, single-purpose subsidiary to act as its general partner in a partnership.
3. Limited Partnerships. A limited partnership has similar characteristics to a general partnership except that the limited partners have limited control over the business of the partnership and are liable only for the debts and liabilities of the partnership to the extent of their capital contributions in the partnership. A limited partnership may be useful for a project financing when the sponsors do not have
A. Construction Contract. Some of the more important terms of the construction contract are:
1. Project Description. The construction contract should set forth a detailed description of all of the work necessary to complete the project.
2. Price. Most project financing construction contracts are fixed-price contracts although some projects may be built on a cost-plus basis. If the contract is not fixed-price, additional debt or equity contributions may be necessary to complete the project, and the project agreements should clearly indicate the party or parties responsible for such contributions.
3. Payment. Payments typically are made on a "milestone" or "completed work" basis, with a retain age. This payment procedure provides an incentive for the contractor to keep on schedule and useful monitoring points for the owner and the lender.
4. Completion Date. The construction completion date, together with any time extensions resulting from an event of force majeure, must be consistent with the parties' obligations under the other project documents. If construction is not finished by the completion date, the contractor typically is required to pay liquidated damages to cover debt service for each day until the project is completed. If construction is completed early, the contractor frequently is entitled to an early completion bonus.
5. Performance Guarantees. The contractor typically will guarantee that the project will be able to meet certain performance standards when completed. Such standards must be set at levels to assure that the project will generate sufficient revenues for debt service, operating costs and a return on equity. Such guarantees are measured by performance tests conducted by the contractor at the end of
WHAT ARE THE TYPICAL CHARACTERISTICS OF PROJECTS FINANCING? Some of the typical characteristics are: -
1. Large capital costs
2. Long gestation periods
3. Assets are not easily transferable 4. Services provided are not tradable 5. Revenues only in local currency; 6. Borrowing may be in foreign currency 7. Tariffs are politically sensitive
8. Social aspects involved
9. Vulnerable to regulatory policies 10. Limited recourse financing needed
What are the features of limited recourse/ non-recourse Project financing? Some of the features are
following:-* Financing through Special Purpose Vehicles (SPV) * Sponsor support obligation for SPV
* Use of Trust and Retention
Arrangement to capture the cash Flow * Govt. guarantee may be available
Project Financing discipline includes understanding the rationale for project financing, how to prepare the financial plan, assess the risks, design the financing mix, and raise the funds. In addition, one must understand the cogent analyses of why some project financing plans have succeeded while others have failed. A knowledge-base is required regarding the design of contractual arrangements to support project financing; issues for the host government legislative provisions, public/private infrastructure partnerships, public/private financing structures; credit requirements of lenders, and how to determine the project's borrowing capacity; how to prepare cash flow projections and use them to measure expected rates of return; tax and accounting considerations; and analytical techniques to validate the project's feasibility
Project finance is finance for a particular project, such as a mine, toll road, railway, pipeline, power station, ship, hospital or prison, which is repaid from the cash-flow of that project. Project finance is different from traditional forms of finance because the financier principally looks to the assets and revenue of the project in order to secure and service the loan. In contrast to an ordinary borrowing situation, in a project financing the financier usually has little or no recourse to the non-project assets of the borrower or the
sponsors of the project. In this situation, the credit risk associated with the borrower is not as important as in an ordinary loan transaction; what is most important is the identification, analysis, allocation and management of every risk associated with the project.
The purpose of this paper is to explain, in a brief and general way, the manner in which financiers in a project finance transaction approach risks. Such risk minimization lies at the heart of project finance.
In a no recourse or limited recourse project financing, the risks for a financier are great. Since the loan can only be repaid when the project is operational, if a major part of the project fails, the financiers are likely to lose a substantial amount of money. The assets that remain are usually highly specialized and possibly in a remote location. If saleable, they may have little value outside the project. Therefore, it is not surprising that financiers, and their advisers, go to substantial efforts to ensure that the risks associated with the project are reduced or eliminated as far as possible. It is also not surprising that because of the risks involved, the cost of such finance is generally higher and it is more time consuming for such finance to be provided.
Risk minimization process
Financiers are concerned with minimizing the dangers of any events which could have a negative impact on the financial performance of the project, in particular, events which could result in: (1) the project not being completed on time, on budget, or at all; (2) the project not operating at its full capacity; (3) the project failing to generate sufficient revenue to service the debt; or (4) the project prematurely coming to an end.
The minimization of such risks involves a three-step process. The first step requires the identification and analysis of all the risks that may bear upon the project. The second step is the allocation of those risks among the parties. The last step involves the creation of mechanisms to manage the risks.
If a risk to the financiers cannot be minimized, the financiers will need to build it into the interest rate margin for the loan.
STEP 1 - Risk identification and analysis
The project sponsors will usually prepare a feasibility study, e.g. as to the construction and operation of a mine or pipeline. The financiers will carefully review the study and may engage independent expert consultants to supplement it. The matters of particular focus will be whether the costs of the project have been properly assessed and whether the cash-flow streams from the project are properly calculated. Some risks are analyzed using financial models to determine the project's cash flow and hence the ability of the
project to meet repayment schedules. Different scenarios will be examined by adjusting economic variables such as inflation, interest rates, exchange rates and prices for the inputs and output of the project. Various classes of risk that may be identified in a project financing will be discussed below.
STEP 2
Risk allocation
Once the risks are identified and analyzed, they are allocated by the parties through negotiation of the contractual framework. Ideally a risk should be allocated to the party who is the most appropriate to bear it (i.e. who is in the best position to manage, control and insure against it) and who has the financial capacity to bear it. It has been observed that financiers attempt to allocate uncontrollable risks widely and to ensure that each party has an interest in fixing such risks. Generally, commercial risks are sought to be allocated to the private sector and political risks to the state sector.
STEP 3
Risk management
Risks must be also managed in order to minimize the possibility of the risk event occurring and to minimize its consequences if it does occur. Financiers need to ensure that the greater the risks that they bear, the more informed they are and the greater their control over the project. Since they take security over the entire project and must be prepared to step in and take it over if the borrower defaults. This requires the financiers to be involved in and monitor the project closely. Imposing reporting obligations on the borrower and controls over project accounts facilitates such risk management. Such measures may lead to tension between the flexibility desired by borrower and risk management mechanisms required by the financier.
There are many risks in finance and these risks are help to overcome on finance, these risk types is as
following:-Of course, every project is different and it is not possible to compile an exhaustive list of risks or to rank them in order of priority. What is a major risk for one project may be quite minor for another. In a vacuum, one can just discuss the risks that are common to most projects and possible avenues for minimizing them. However, it is helpful to categories the risks according to the phases of the project within which they may arise: (1) the design and construction phase; (2) the operation phase; or (3) either phase. It is useful to divide the project in this way when looking at risks because the nature and the allocation of risks usually change between the construction phase and the operation phase.
1. Construction phase risk - Completion risk Completion risk allocation is a vital part of the risk allocation of any project. This phase carries the greatest risk for the financier. Construction carries the danger that the project will not be completed on time, on budget or at all because of technical, labour, and other construction difficulties. Such delays or cost increases may delay loan repayments and cause interest and debt to accumulate. They may also jeopardize contracts for the sale of the project's output and supply contacts for raw materials.
Commonly employed mechanisms for minimizing completion risk before lending takes place include: (a) obtaining completion guarantees requiring the sponsors to pay all debts and liquidated damages if completion does not occur by the required date; (b) ensuring that sponsors have a significant financial interest in the success of the project so that they remain committed to it by insisting that sponsors inject equity into the project; (c) requiring the project to be developed under fixed-price, fixed-time turnkey contracts by reputable and financially sound contractors whose performance is secured by performance bonds or guaranteed by third parties; and (d) obtaining independent experts' reports on the design and construction of the project. Completion risk is managed during the loan period by methods such as making pre-completion phase drawdown of further funds conditional on certificates being issued by independent experts to confirm that the construction is progressing as planned.
2. Operation phase risk - Resource / reserve risk
This is the risk that for a mining project, rail project, power station or toll road there are inadequate inputs that can be processed or serviced to produce an adequate return. For example, this is the risk that there are insufficient reserves for a mine, passengers for a railway, fuel for a power station or vehicles for a toll road.
Such resource risks are usually minimized by: (a) experts' reports as to the existence of the inputs (e.g. detailed reservoir and engineering reports which classify and quantify the reserves for a mining project) or estimates of public users of the project based on surveys and other empirical evidence (e.g. the number of passengers who will use a railway); (b) requiring long term supply contracts for inputs to be entered into as protection against shortages or price fluctuations (e.g. fuel supply agreements for a power station); (c) obtaining guarantees that there will be a minimum level of inputs (e.g. from a government that a certain number of vehicles will use a toll road); and (d) "take or pay" off-take contacts which require the purchaser to make minimum payments even if the product cannot be delivered.
Operating risk
These are general risks that may affect the cash flow of the project by increasing the operating costs or affecting the project's capacity to continue to generate the quantity and
quality of the planned output over the life of the project. Operating risks include, for example, the level of experience and resources of the operator, inefficiencies in operations or shortages in the supply of skilled labour. The usual way for minimizing operating risks before lending takes place is to require the project to be operated by a reputable and financially sound operator whose performance is secured by performance bonds. Operating risks are managed during the loan period by requiring the provision of detailed reports on the operations of the project and by controlling cash-flows by
requiring the proceeds of the sale of product to be paid into a tightly regulated proceeds account to ensure that funds are used for approved operating costs only.
METHODS OF THE PROJECT FINANCING:-There are three Methods in Project Financing.
1. Cost Share financing or Low interest loan financing 2. Debts Financing
3. Equity Financing
These three methods are very important in project financing, this explanation is as
following:-1 Cost Share Financing or Low Interest Loans
There are few outright grant programs remaining for anaerobic digestion system funding. It may be possible to receive a portion of the project funding from public agency sources.
The Environmental Quality Incentives Program (EQIP), administered by USDA’s Natural Resources Conservation Service (NRCS), promotes agricultural production and environmental quality as compatible goals. EQIP was reauthorized and the funding amount significantly expanded under the Farm Security and Rural Investment Act of 2002, which requires that 60 3percent of EQIP funds be spent on animal operations. Anaerobic digesters may qualify for cost share funding under NRCS programs. The owner should check with the local or state NRCS offices to see if a digester project may qualify.
Another potential source of funding is a state energy program. At the time of publication, the status of renewable energy low-interest loan or grant programs is in flux. AgSTAR has identified approximately 30 states that offer financial assistance in the form of low-interest loans, property tax exemptions, and grants. To learn more about these state
programs and other federal funding opportunities, review the Ag STAR publication, Funding On-Farm Biogas Recovery Systems, EPA-430-F-04-002, and December 2003. Also Appendix B provides a list of NRCS and Department of Energy contacts that should be able to help the owner contact the correct person in his state.
The advantage to receiving funding is the reduced project cost. The disadvantages are the time and effort it takes to apply for and receive funding monies.
2 Debt Financing
Most agricultural biogas projects built in the last 15 years used debt financing, where the owner borrowed from a bank or agricultural lender. The biggest advantage of debt financing is the ability to use other people’s money without giving up ownership control. The biggest disadvantage is the difficulty in obtaining funding for the project.
Debt financing usually provides the option of either a fixed rate loan or a floating rate loan. Floating rate loans are usually tied to an accepted interest rate index like U.S. treasury bills.
Lender’s Requirements
In deciding whether or not to loan money, lenders examine the expected financial performance of a project and other underlying factors of project success. These factors include contracts, project participants, equity stake, permits, technology, and sometimes, market factors. A good borrower should have most, if not all, of the following:
— Signed interconnection agreement with local electric utility company — Fixed-price agreement for construction
— Equity commitment — Environmental permits — Any local permits/approval
However, most lenders look at the assets of an owner or developer, rather than the cash flow of a digester project. If a farm has good credit, adequate assets, and the ability to repay borrowed money, lenders will generally provide debt financing for up to 80 percent of a facility’s installed cost.
Lenders generally expect the owner to put up an equity commitment of about 20 installed using his/her own money and agree to an 8 to 15 year repayment schedule. An equity commitment demonstrates the owner’s financial stake in success, as well as implying that
owner will provide additional funding if problems arise. The expected debt-equity ratio is usually a function of project risk.
Lenders may also place additional requirements on project developers or owners. Requirements include maintaining a certain minimum debt coverage ratio and making regular contributions to an equipment maintenance account, which will be used to fund major equipment overhauls when necessary.
In this method, there are two important sub methods, which are following:
Working Capital Method:
-Working capital finance is concerned with short-term investment decisions taken by a firm extended by commercial banks. Almost all firms avail working capital finance from commercial banks. In other words, working capital finance plays a pivotal role in keeping the business enterprise running. It is the most vital ingredient of any business activity. Efficient management of current assets, determining the optimum level of liquidity to be maintained, management of current liabilities etc. all form a part of working capital finance management.
Current assets are assets, which are expected to be realized in cash or sold or consumed over the operating cycle of the business usually not exceeding one year.
DEBT FINANCING
Items that are expected to be paid over one year from the date of balance sheet are classified as current liabilities. The term is use to designate obligations whose liquidation is expected to require the use of current assets or the creation of other current liabilities. Therefore, the current assets and current liabilities, for the purpose of determining the working capital gap, are classified under GWC and NWC as explained as follows:
Gross working capital: - It refers to sum of all current assets. It is primarily quantitative in nature, which represents the commitment of funds to different items of current assets and their relationship to turnover.
Net working capital: - Technically, it is the difference between current assets and current liabilities. NWC concept is qualitative in nature current credit soundness is indicated by positive NWC position and is of major concern to investor and bankers.
FINANCING APPROACHES
Three financing approaches are discussed below. They vary with reference to proportion of short-term vs. long-term funds in the financing mix. These have implications on profitability and risk of the firm.
Hedging Approach: - Under this approach, an asset would be offset with a financing instrument of the same approximate maturity, i.e. short-term or seasonal variations in current assets would be financed with short-term debt. On the other hand, hard-core component of current assets would be financed with long-term funds.
We see that the firm’s fixed assets and permanent current assets are financed with long-term funds and temporary current assets with short-long-term funds. The justification for the matching of maturities is that, since the purpose of financing is to pay for assets, the financing could be relinquished when the assets is expected to be relinquished. Short-term financing for long-Short-term need is dangerous. A profitable firm may not be in a position to meet its cash obligations if funds borrowed on short-term basis have become tied-up in permanent assets (permanent current assets and fixed assets)
A hedging approach to financing suggests that apart from current installments on long-term debt, a firm would show no current borrowings at the seasonal troughs in Fig. an above, short-term borrowings would be paid off with surplus cash. As the firm’s variable current assets would go up it would borrow on a short-term basis, again paying the borrowing off as surplus cash is generated. Permanent funds requirements would be financed with long-term debt and equity (either external or internal). In a growth situation, the level of permanent financing would go up in keeping with the increases in permanent funds requirements. Interestingly, RBI guidelines on bank credit also
Fig. a Troughs Troughs Short term Funds
recommend increasing the borrower’s contribution from long-term funds to the extent to full core current assets.
CONSERVATIVE APPROACH
B) Conservative Practice: - The financing policy is said to be conservative when it depends more on long term funds for financing needs. Under this plan, the firm finances its permanent assets and also a part of fluctuating current assets with long term financing. The firm uses short-term funds in a small amount to meets it peak seasonal requirements. On the other hand, it stores liquidity in the form of marketable securities during off-season. The humps below the dashed line represent short term financing and the troughs below the dashed line represent short-term marketable securities.
AGGRESSIVE APPROACH
C) Aggressive Approach: -
A firm here uses more short term financing than warranted under hedging approach. A part of the permanent current assets are financed by short-term funds. Some extremely aggressive companies may even finance a part of their fixed assets with short term financing. The relatively more use of short term financing makes the firm more risk.
37 Fig.b Marketable Securities Short Term Funds Lo ng Term Funds
Rs. Permanent Current Assets Fig. Sh ort Term Funds
This is actually a highly aggressive, non-conservative position and a number of Indian companies have resorted to this practice in the past. These undertakings are subject to the potential risks of loan renewal problems.
How the firm should decide which of these approaches it should follow?
The decision criteria for the use of long term vs. short-term funds for financing current assets are:
-1) Cost of funds based on yield, 2) flexibility, 3) Risk and 4) Return
Cost: - The cost of funds is related to the term structure of interest rates and the behavior of yield curve. The yield curve is generally upward slopping, showing that interest rates increase with time. Longer dated maturities have a greater interest than short dated maturities. Hence, it can be seen that short-term loans cost less than long term funds.
Flexibility: - Short-term funds are more flexible because it is relatively easy to refund them when the need for fund diminishes. Hence, if the firm expects its needs for funds to diminish in the near feature, it may choose short-term debt for flexibility it provides.
Risk: - Use of short-term debt subjects a firm to more risk than long-term debt. This risk effect occurs for two reasons:
In long term funds the interest rates are fairly stable over time, but in short term borrowings the interest rate may fluctuate widely, often going high.
If it borrower heavily on short-term basis it may find itself unable to repay this debt or it may be in a shaky financial position that the lender will not extend the loan. Thus, a big uncertainty is created.
Risk return trade off: - Thus the short-term funds are less expensive but involve greater risk than long term financing. The choice between long term and short term financing involves a tradeoff between risk and return illustration below:
-Fig.b
Yield Curve
Increase Rate %
WORKING CAPITAL FINANCE FROM BANKS
Cash credit: - The banker will give this facility to the customers by giving certain amount of credit facility on continuous basis. The borrower will not be allowed to exceed the limits sanctioned by the bank.
Bank Overdraft: - It is a short term borrowing facility made available to the companies in case of urgent need of funds the banks will impose limits on the amount they can lend. When the borrowed funds are no longer required they can quickly and easily be repaid. Banks issue overdraft with a right to call them in short-term notice.
Bill Discounting: - The company, which sells goods on credit will normally draw a bill on buyer, who will accept and send it to the seller of goods. The seller in turn discounts the bill with his banker. The banker will generally earmark the discounting bill limits.
Bill Acceptance: - To obtain finance under this type of arrangement companies draws a bill of exchange. The bank accepts the bill there by promising to payout the amount of the bill at some specific future date. The bill its self is then worth something as the holder is to receive a some of money at future date. This bill can be sold either at once or when the funds are needed. It is sold in the money market to say, discount houses. It is similar to an arrangement to an ordinary bill of exchange between to companies but now one of the parties is a bank a bank bearing a reputable bank’s name can be sold in the money markets at a lower discount rate then a bill bearing the of the medium or a small sized company because of the reduced risk.
Line Of Credit: - Line of credit is a commitment by a bank to lend a certain amount of funds on demand specifying the maximum amount of unsecured credit the bank will permit the customer to lend at any point of time. The bank will charge extra cost over the normal rate of interest since it will keep the funds available to make use of the funds by the customer at all times.
Letter Of Credit: - It is an arrangement by which the issuing bank on the instruction of customer or on its own behalf undertakes to pay or accept or negotiate or authorizes another bank to do so against stipulated documents subject to compliance with specified terms and conditions. The documentary credit is considered as the best payments arrangement since a reputed bank that pays against the presentation of stipulated documents as mentioned in the letter of credit.
Bank Guarantees: - Bank guarantees is one of the facilities that the commercial bank extends on behalf of their clients in a favor of third parties who will be beneficiaries of the guarantees. In fact when a bank guarantee is given no credit is extended and banks do not part with any funds there will be only guarantee to the beneficiary to make payment in the event of the customer of whose behalf the guarantee is given, he banker given guarantee has to pay and claim reimbursement from his client. The banker’s liabilities arise only of his customer fails to pay the beneficiary of the guarantee. That is why banks guarantee limit are known as ‘none borrowing limits’ or ‘none funds limits’.
SECURITY
Banks needs some security from the borrowers against the credit facilities extended to them to avoid any kind of losses. Security can be created in various ways. Banks provide credit on the basis of the following modes of security from the borrowers:
-Hypothecation: - Under this mode of security, the banks provide credit to borrowers against the security of moveable property, usually inventory of goods. The goods hypothecated, however, continue to be in possession of the owner of the goods that is the borrowers. The right of banks depends the terms of the contract between and the lender. Although the bank does not have the physical possession of the goods, it has the legal right to sell the goods to realize the outstanding loans. Hypothecation facility is normally not availed to new borrower.
Pledge: -The goods, which are offered as security, are transferred to the physical possession of the lender. An essential prerequisite of pledge is that the goods are in the
custody of the banks. Pledge creates some kind of liability for the bank in the sense of reasonable care of the pledge goods must be taken by the banks.
Lien: - The term lien refers to the right of a party to retain goods belonging to the other party until a debt due to him is paid. Lien can be of two types via, particular lien i.e. a right to retain goods until a claim pertaining to these goods is fully paid and another one is general lien, which is applied till all dues of the claimant are paid. Banks usually enjoy general liens.
Mortgage: - It is a transfer of a legal interest in specific immovable property for security the payment of debt. It is the convenience of interest in the mortgaged property. This interest is terminated as soon as the debt is paid. Mortgage is taken as an additional security for working capital credit.
DOCUMENTATIONS
Documentation is an integral part of lending by banks. It establishes legal relationships between lender and borrower and provides enforceable character to securities. Careful security of the documents is extremely important to avoid any discrepant documents not in compliance with the terms and conditions of the agreement.
List of Documents Required:
-Execution of security and other documents for credit facilities granted to borrowers. Demand promissory note.
General conditions-applicable to term/demand loan. Credit facility agreement for term/demand loan.
General conditions applicable to fund and non-fund based working capital credit facilities.
Credit facility agreement for the overall working capital limit. Deed of hypothecation.
Imports trust receipt. Corporate guarantee.
10) Letter for sharing security on pari passu basis.
11) Unstamped declaration as per the companies Act, 1956 To be given by corporate borrower.
12) Revival documents letter of acknowledgement of debt To be executed by the guarantee.
Bank Guarantee:
-Deferred payment guarantee.
Omnibus counter indemnity (for guarantee issued for supply of machinery). Guarantee to be issued to government for due to performance of contractors. Guarantee for performance of contract by supplier.
Omnibus counter indemnity (for guarantee issued for performance of contract).
Undertakings for the guarantee issued by the bank for foreign currency loan with floating rate of interest.
Guarantee for foreign currency loan with fixed/floating rate of interest.
General counter guarantee and indemnity covering several letters of credit within the sanctioned letter of credit limit.
Board resolution for creation of equitable mortgage by deposit of title deeds and confirmation thereof (for corporate borrowers).
Declaratory affidavit by the Director of the corporate borrower.
Memorandum of entry for corporate borrowers, sole proprietorship firms and partnership firms, for individuals etc. as the case may be.
Letter of authority for creation of equitable mortgage by depositing title deeds of the properties for partnership firms.
Letter to be given by the co-operative housing society in case of equitable mortgage of flats.
CREDIT MONITORING ASSESSMENT
RBI, in 1975, prescribed the format to obtain the necessary data from borrowers to assess working capital requirement under the Credit Monitoring Assessment (CMA) in 1988. Banks continue to obtain forms for funded working capital limits of Rs.10 million and above as these facilitate the computation of MPFB.
The CMA comprises of 6
forms:-Form I: - It contains particulars of existing credit from the entire banking system including term loan facilities
Form II:- Known as the operating statement, it contains data relating to gross sales, net sales, cost of raw materials, power and fuel, etc. it gives the operating profit and the net profit figures.
Form III: - A complete analyses of various items of last year’s balance sheet, current year’s estimates and following year’s projection are given in this form.
Form IV: - Details of various items of current assets and current liabilities are given. The figures in this form must tally with those in Form III.
Form V: - The calculation of MPBF is done in this form to obtain the fund based credit limits to be granted to the borrower.
Form VI: - It provides the details of fund flow from long term sources and uses to indicate whether they are sufficient to meet the borrower’s long-term requirements.
Once the MPBF is arrived at on the basis of inventory and receivables norms by the appropriate method of lending, banks decide the various funds and non-fund limits based limits. The fund-based limits should not exceed the MPBF. The cash credit component should not be more than 20% for borrowers having working capital limit more than Rs. 100 million from the banks. The balance may be 80% may be provided as demand loan.
Working Capital Loan Vs Business Cash Advance
An analytical approach to both these methods of working capital financing, namely, working capital loan and business cash advance, reveals the following points:
Working capital business cash advance is difficult to qualify for when compared with business cash advance as an alternative source for working capital financing. Financing bodies look at the credit score of the borrower, available collateral and various other factors before granting a working capital business cash advance. However, most small businesses would easily qualify for a business cash advance.
It generally takes a week or more to get working capital business cash advance at the earliest and a lot of paper work is involved. Your application for business cash advance is processed much faster (cash in 72 hours) and the paper work is also relatively lesser. We maintain a very simplified process for working capital financing.
A business cash advance is never tied to a fixed repayment schedule. The repayment is done from credit card sales receipts and the businesses generally do not feel the pinch. Working capital loans on the other hand would have a fixed repayment schedule and the borrower would need to repay the amount according to the schedule. If the borrower fails to repay the working capital business cash advance, it might affect his credit score and he also stands the chance of losing his collateral. Irrespective of the business volume on a particular month the borrower will need to repay the working capital business cash advance according to the pre determined fixed amount.
2. TERM LOAN METHOD:
-Definition
A bank loan to a company, with a fixed maturity and often featuring amortization of principal. If this loan is in the form of a line of credit, the funds are drawn down shortly after the agreement is signed. Otherwise, the borrower usually uses the funds from the loan soon after they become available. Bank term loans are very a common kind of lending.
It is becoming increasingly clear that the impact of increasing oil prices to the consumer has still to be felt," observed the RBI Governor, Venugopal Reddy.
In the face of upward pressure on interest rates, the bank has kept the benchmark bank rate - the rate at which it lends to commercial banks - and Cash Reserve Ratio (CRR) - that regulates liquidity in the market - unchanged.
The central bank has also retained interest rates on savings bank deposits at the current 3.5 per cent per annum so as not to spur interest rate, but favored deregulation of the rate in the long run.
According to Governor Reddy, the central bank did not raise key rates because the pre-emptive steps taken in January this year had apparently fetched the desired results, but the decision against increasing rates was a "delicate" one.
However, to ensure that there is no liquidity squeeze, Governor Reddy, in his new credit policy, has raised the interest rates on rupee deposits by Non-Residents and export credit in foreign currency.
This measure is expected to bring in more liquidity in the system by absorbing more foreign exchange.
To boost agriculture credit, the RBI has simplified and liberalized branch-licensing policies for rural banks and set up a working group to address various issues faced by distressed farmers, including review of legal framework for money lending.
The bank has said that it would set up another working group to examine the relevant recommendations of the R H Patil Committee on corporate bonds and securitization. On liquidity, the bank has said that it would continue to ensure appropriate cash availability in the system using all the policy instruments as and when required.
"The Reserve Bank will continue to ensure that appropriate liquidity is maintained in the system so that all legitimate requirements of credit are met, consistent with the objective of price and financial stability," the central bank said in a statement. "Towards this end, RBI will continue with its policy of active demand management of liquidity."
The 'Loan System" was introduced to minimize the risks of cash and liquidity management on the part of the banking system, caused by volatile movements in cash credit component of working capital. In the current environment of short-term investment opportunities available to both corporate and banks, RBI has reviewed the guidelines relating to the 'Loan System'. Accordingly, it has been decided that banks will henceforth have the freedom to change the composition of working capital by increasing the cash credit component beyond 20 per cent or to increase the 'Loan component' beyond 80 per cent as the case may be, for working capital limits of Rs. 10 core and above, if they so desire. Banks are expected to appropriately price each of the two components of working capital finance, taking into account the impact of such decisions on their cash and liquidity management. The guidelines relating to the 'Loan System', as currently applicable are set out in the Annexure.
4. Consequently, paragraph 13 B.I.6 of Chapter 13 in the Manual of Instructions may be replaced with the revised guidelines.
Guidelines on Loan System for Delivery of Bank Credit 1. Loan Components and Cash Credit Component
(a) In the case of borrowers enjoying working capital credit limits of Rs.10 corer and above from the banking system, loan component should normally be 80 per cent. Banks, however, have the freedom to change the composition of working capital by increasing the cash credit component beyond 20 per cent or to increase the 'Loan Component' beyond 80 per cent as the case may be, if they so desire. Banks are expected to appropriately price each of the two components of working capital finance, taking into account the impact of such decisions on their cash and liquidity management.
(b) In the case of borrowers enjoying working capital credit limit of less than Rs.10 crore, banks may persuade them to go in for the `Loan System' by offering an incentive in the form of lower rate of interest on the loan component, as compared to the cash credit component. The bank may settle the actual percentage of `loan component’ in these cases with its borrower clients.
(c) In respect of certain business activities, which are cyclical and seasonal in nature or have inherent volatility, the strict application of loan system may create difficulties for the
borrowers. Banks may, with the approval of their respective Boards, identify such business activities, which may be exempt from the loan system of delivery.
2. Ad hoc Credit Limit
As at present, ad hoc/additional credit for meeting temporary requirements can be considered by the financing bank only after the borrower has fully utilized/exhausted the existing limit.
3. Sharing of Working Capital Finance
The ground rules for sharing of cash credit and the consortium may lay down loan components, wherever formed, subject to guidelines on bifurcation as stated in paragraph (1) above. The level of individual bank's share shall continue to be governed by the norm for single borrower/group exposure.
4. Rate of Interest
Banks are allowed to prescribe Prime Lending Rates and spreads over Prime Lending Rates separately for `loan component' and 'cash credit component'.
5. Period of Loan
Banks in consultation with borrowers may fix the minimum period of the loan for working capital purposes. Banks may decide to split the loan component according to the need of the borrower with different maturity bases for each segment and allow roll over. 6. Security
In regard to security, sharing of charge, documentation, etc., banks may themselves decide on the requirement, if necessary, in consultation with the other participant banks. 7. Export Credit
The bifurcation of the working capital limit into loan and cash credit components, as stated in paragraph (1) above, would be effected after excluding the export credit limits (pre-shipment and post-shipment). Export credit limit would continue to be allowed in the form hitherto granted.
8. Bills limit for inland sales may be fully carved out of the `loan' component . Bills� limit also includes limits for purchase of third party (outstation) cheques/bank drafts. Banks must satisfy themselves that bills limit is not misultilised and in this connection, the instructions contained in Circular DBOD. No. BC.8/16.13.100/92-93 dated July 27, 1992 should be carefully noted and complied with.
9. Renewal/ Rollover of Loan Component
The `loan component' may be renewed/rolled over at the request of the borrower. 10. Provisions for Investing Short-term Surplus Funds of Borrower
The banks, at their discretion, may permit the borrowers to invest their short-term/temporary surplus in short-term money market instruments like Commercial Paper (CP). Certificates of Deposit (CD) and in Term Deposit with banks, etc.
11. Applicability
The loan system would be applicable to borrowal accounts classified as `standard' or `sub-standard'.
The most common use of term loans is for businesses. If you are running a small business, there are undoubtedly going to be times when you need some working capital to either get things going or keep yourself afloat. Many times, a term loan is the answer for
just such a problem.
Many banks and similarly run financial institutions offer term loans as a way to help small business owners. However, like with any other loan you and your business need to qualify. How does that work, though? There are some factors that will affect term loan approval.
The first thing a bank looks at when considering your business for a term loan is your credit character. That is, they want to know how you have managed loans in the past. They will look at you personally as well as your business. They also want to know what your experience is. For example, if you want a term loan to open your own bait and tackle shop, yet have no retail or fishing industry experience then you may have a tough time. Another factor taken into account when seeking a term loan is your credit capacity. Credit capacity is how the bank views your ability or likely ability to pay back the loan. They will look at your business records, personal finances, and even your former business
ventures to get a clear picture.
Most banks will want collateral for a term loan. They will, in fact, probably want more in collateral than what the loan is worth in the first place. This is to ensure that if you do not pay back the term loan that the bank will be able to recoup their loss in some form.
As a final point, they will look at your overall capital. They will want to see your cash holdings. They will also look at what you have available that can be liquidated. Essentially, the bank wants to make sure that they will get their money even if your business struggles.
HOW TO GET APPROVED FOR A TERM LOAN?
If you decide to seek out a term loan for your business, you want to make sure you get approved. Since the approval process is long and difficult, it is a good idea to have some idea of what you should do to help your chances. Here are a few tips on getting approved.
First of all, make sure your business plan is rock solid. Your plan is where a lot of the investigation will take place from the lender. Not only should it be solid, but also is should be well presented and laid out. Make sure you have a well polished one to three page summary of the plan on the front. This will be your hook. Secondly, lenders like to see that you have a stake in your own business. A term loan for equipment or the business as a whole will be more likely to be approved if you have at least a 24% stake in the business. Lenders see this as motivation for you to do everything
you can to succeed.
Unlike with a home, it is better to rent than to buy. A term loan lender would rather you were spending your money on revenue producing equipment and inventory. Rent your building so that you tie up less money and accumulate no more business debt. Term
lenders like to see less debt.
For a small business, sometimes bigger is not better. When seeking your term loan, try the smaller local banks. They may be more likely to take a chance on a local. Additionally, a smaller bank is likely to give you more individual attention than a large financial company.
