Project Finance vs Corporate Finance: Which Suits Your Project?

What is the core difference?

The question is: where does the repayment come from?

• Project finance: from what the project earns. The lender studies the project's economics, contracts and risks. Recourse to the sponsor is limited and set out in the documents.
• Corporate finance: from the company as a whole. The lender studies the company's financials, existing debt and track record. The loan is serviced from all of the company's cash flows.

How do the two compare?

Factor	Project finance	Corporate finance
Borrower	Usually a special purpose vehicle (SPV)	The operating company
Primary repayment source	Project cash flows	Company-wide cash flows
Main appraisal	Project viability, contracts, cash flow model	Company financials and credit history
Security	Project assets, cash flows, contracts, sponsor shares	Company assets, charges, guarantees
Sponsor recourse	Limited, defined in documents	Full
Documentation	Heavy: common loan agreement, escrow, project contracts	Lighter
Time to close	Longer	Shorter
Best fit	Large, ring-fenced projects with predictable revenues	Smaller projects or sponsors with strong balance sheets

What do RBI's 2025 Project Finance Directions require?

RBI issued the Project Finance Directions, 2025 on June 19, 2025, effective October 1, 2025. They apply to commercial banks, NBFCs, all-India financial institutions and certain co-operative banks, for projects that had not achieved financial closure by the effective date. Key points:

• Definition: at least 51% of repayment, as envisaged at financial closure, must come from the project's cash flows, and all lenders must have a common agreement with the borrower.
• Financial closure: the date the capital structure covering at least 90% of total project cost becomes legally binding.
• Before disbursement: financial closure must be achieved and the original date of commencement of commercial operations (DCCO) documented. For commercial real estate, the original DCCO is the expected date of the occupancy certificate.
• Land: at least 75% of the land or right of way must be available before disbursement for non-PPP projects, including commercial real estate. For PPP infrastructure projects the floor is 50%.
• Disbursement: proportionate to construction progress and equity infusion, with progress certified by the lender's independent engineer or architect.
• Tenor: the repayment tenor, including moratorium, may not exceed 85% of the project's economic life.
• Consortium floors: where aggregate exposure is up to ₹1,500 crore, no lender may hold less than 10%. Above that, the floor is 5% or ₹150 crore, whichever is higher, until actual DCCO.
• Standard asset provisioning in construction phase: 1.25% for commercial real estate, 1.00% for commercial real estate (residential housing) and for other projects. In the operational phase, this falls to 1.00%, 0.75% and 0.40% respectively, subject to conditions.
• DCCO deferment: up to 3 years for infrastructure and up to 2 years for non-infrastructure, including commercial real estate, with additional provisioning for each quarter of deferment.

For a borrower, the practical effect is more upfront work: approvals before closure, land in hand and a realistic DCCO.

Worked example: which structure fits?

Illustrative numbers only.

A manufacturing group with a ₹600 crore balance sheet wants to build a ₹200 crore warehousing park with long-term leases signed with tenants.

Option A: corporate finance. The group borrows ₹130 crore on its own balance sheet. Approval is faster and documentation lighter. But the debt sits on the group's books, uses its borrowing capacity and its covenants apply across the group.

Option B: project finance. An SPV owns the park. Lenders fund ₹130 crore against the lease cash flows, with the group investing ₹70 crore of equity. Lenders build a cash flow model, test the DSCR from lease rentals and require an escrow of rents. The group's other businesses are largely protected if the project underperforms.

If the leases are strong and the group wants to keep borrowing capacity for its core business, project finance usually fits better. If the project is small or the revenues are uncertain, corporate finance is usually simpler.

What do lenders look for in a project finance proposal?

1. Defined project scope with costs and timelines.
2. Site or asset control: land ownership or lease, right of way.
3. Viable project economics: a cash flow model that services debt with headroom.
4. Sponsor equity committed upfront, not promised later.
5. Approvals in place before financial closure.
6. Contracts: EPC, offtake, lease or concession agreements that make cash flows predictable.
7. Risk allocation: cost overruns, delay, market and counterparty risk, with mitigants such as standby credit facilities.

How does this apply to real estate?

Real estate development finance has special features. Banks cannot finance land acquisition by private builders under RBI's housing finance rules, so land is usually funded with equity or non-bank capital. Construction finance is disbursed in stages and tied to the RERA designated account. See construction finance for developers and the RERA 70% escrow rule.

Which should you choose?

Choose project finance if:

• The project is large relative to your balance sheet.
• Revenues are contracted or predictable.
• You want to ring-fence project risk.
• You can invest the equity and handle the documentation.

Choose corporate finance if:

• The project is small relative to your balance sheet.
• Speed and flexibility matter more than ring-fencing.
• Project revenues are not yet predictable enough for lenders to rely on alone.

What are the most common mistakes in project finance proposals?

• Optimistic timelines. A DCCO that is not credible leads to deferment, higher provisioning for the lender and tougher terms for you.
• Equity that is promised, not committed. Lenders want to see sponsor money in or firmly committed.
• Missing approvals. RBI's 2025 Directions require applicable approvals before financial closure.
• No cost overrun plan. Without a standby facility or sponsor support, an overrun becomes a restructuring.
• Thin DSCR. A model that only just clears the lender's threshold leaves no headroom for stress cases.

How MoneyKarma helps

MoneyKarma is a loan distribution platform, not a lender. We help sponsors structure the proposal and compare project finance and corporate finance options across 90+ lender partners, then coordinate with the lenders you choose. Lenders make the credit decision. See project finance, read about developer funding, or share your requirement.