Funding from international sources is possible in two ways: Corporate Finance and Project Finance.
The first mode of financing is with full commitment, and it is possible to repay the financial obligations of the project through all the assets of the company. The second type of financing is considered limited or non-committal, and the source of repayment of project obligations is the income from the sale of products and funds related to the project. The second type of financing is more acceptable for executive bodies.
In both cases, finance is a short-term method of transferring capital to the country because after the loan repayment deadline, the capital must be returned along with its interest. Therefore, the most important condition for receiving a foreign currency loan is to have economic justification and a suitable rate of return on investment.
Financing contracts generally include provisions that clearly determine and establish the rights, responsibilities and obligations of the parties. These contracts are concluded between various international sources providing facilities and users after conducting the necessary negotiations and reaching an agreement. The clauses included in these contracts include definitions, the amount of the facility, how to use the granted facility, repayment deadline, determining how to resolve disputes, governing laws, authorities for handling disputes, how to guarantee, insurance and other special cases.
In short, finance contracts mean that a bank or a foreign commercial institution has paid a loan to a specific country or company for a specific operation, and in fact has no control over spending it, and therefore has no obligation for the plan to come to fruition. He receives the determined due dates of the principal and its subsidiary from the contract or the bank guaranteeing the contract.
Some features of using finance:
1. In case of obtaining a facility with a low rate and a long repayment period, it is a very useful method (provided that there is a proper economic justification).
2. If it is possible to sell manufactured products in a short term and with more profit than finance profit, it is considered an effective method.
3. In countries where there are relatively large fluctuations in foreign exchange income, the use of finance to finance projects, especially in the case of government projects, should be accompanied by more supervision and control.
4. The resulting risk when receiving foreign loans is the responsibility of the borrower (in most cases, the government and state-owned companies), and in any case, it is mandatory to repay the principal and profit from the investment within the specified time.
