Project finance is a way of financing long-term infrastructure, industrial projects, and public services using a non-recourse or limited recourse financial structure. It involves the funding of a specific economic entity, known as a Special Purpose Vehicle (SPV), created by the sponsors using equity or debt. The debt and equity used to finance the project are paid back from the cash flow generated by the project. Project financing is a loan structure that relies primarily on the projects cash flow for repayment, with the projects assets, rights, and interests held as secondary collateral.

Project finance is often used to fund large-scale industrial or infrastructure projects that involve a construction phase, such as building a transportation system addition or a power generation facility. Projects like these require significant upfront capital, and they do not generate a return until the construction phase is complete. Project finance is classified as a non-recourse type of financial structure, which means that in the event of default on the loans secured to fund the project, sponsors generally have recourse only to assets held by the SPV, rather than the parent company.

Project finance is often more complicated than alternative financing methods and involves a number of equity investors, known as sponsors, and a syndicate of banks or other lending institutions that provide loans to the operation. They are most commonly non-recourse loans, which are secured by the project assets and paid entirely from project cash flow, rather than from the general assets or creditworthiness of the project sponsors.

Some key benefits of project finance include the opportunity for risk sharing, extending the debt capacity, the release of free cash flows, and maintaining a competitive advantage in a competitive market.