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Question

Which of the following is a disadvantage of project finance?

A Higher interest rates compared to other forms of financing Correct Answer Incorrect Answer
B Limited access to funding options compared to other forms of financing Correct Answer Incorrect Answer
C Increased risk for the borrower compared to other forms of financing Correct Answer Incorrect Answer
D Increased risk for the lender compared to other forms of financing Correct Answer Incorrect Answer
E Access to long-term, non-recourse financing Correct Answer Incorrect Answer

Solution

Project finance can be more expensive than other forms of financing due to the higher risk involved, resulting in higher interest rates and fees. The structuring and negotiation of project finance transactions can also be complex and time-consuming, increasing transaction costs. However, project finance can offer access to long-term, non-recourse financing, making it useful for large-scale infrastructure or energy projects. It can also help manage risk by allocating risks to the party best able to manage them, reducing overall project risk and improving chances of success.

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