Project Funding Fees and Costs
Project Funding Payments.
In the project funding world many entrepreneurs refuse to pay "upfront fees" towards their project. When you apply for debt financing, the funder may have to implement a financial structure to enable you to kick-start a project and as well to determine your ability to pay back the loan. Whilst it's true that you may not have to pay an upfront fees, there are often associated costs involved.
Fees V's Cost:
A fee is when you are asked to pay for the services of providers whether it be for the arrangement of the fund package through the intermediate or a fee levied by the funder themselves. This fee is normally levied at the end of the funding procedure.
A cost is something that can not be avoided. The money goes towards actual events such as purchasing a bank instrument on your behalf, blocking funds within a hedge fund, securing private equity money. All these incur costs.
What Is Included In The Cost?
Costs can include an array of things such as securing collateral. Let's say you have a project which has NO collateral and is not yet generating any revenue. Generally funders / lenders protect the money loaned out by securing it against some kind of collateral. As a project which is at its beginning stages, they will not have any collateral. It is quite common that funders will have to go and obtain external collateral by purchasing instruments to secure against the project.
Often this involves another corporate entity to pledge their assets against the instrument for 1 year and 1 day. You now have two parties at risk, the corporation pledging their assets against the instrument and the lender purchasing the instrument to lend against it – this incurs costs. Other costs can include 1) due diligence 2) to pay for flights for face to face meetings, 3) blocking money within a hedge fund, 4) securing funds from private equity investors, all of this incurs very real costs. Not to say that all companies have these costs.
Payments and Commission
Getting project funding can be quite ruthless. Please read your agreements and terms thoroughly when applying with brokers or lenders as it's been known that some companies are charging ridiculous sign up fees, retainers, Skype call fees and an exit fee. All this can be legitimate however there are those funders out there who are just out to collect on the fees and very rarely bring any funding results. I've heard that some companies are charging 20K for just the sign up fee and exit fees can be making it difficult for companies to go elsewhere if they have not received funding within 12 months.