Project Where’s the Money? A solid financial plan is critical to getting your project funded. By Reg Renner discussed the importance of a vision and a functioning team, but without adequate equity and capital investment, the dream could die. Credit strength questions are of- ten left until the end of the project, with the hope that it will come together somehow. I’ve seen elaborate business plans without even a simple pro forma income and ex- pense spreadsheet. Often there is no con- struction budget, cash flow timeline, or detailed breakdown of income sources. To launch a successful bioenergy project, you must start with a solid financial plan. In the movie Cool Runnings, a Jamaican T bobsleigh athlete asks his bank manager to sponsor his dream of competing in the win- ter Olympics. The bank manager cannot contain his disbelief and scepticism, and breaks into uncontrollable laughter. For- tunately, the movie is a comedy, but if you have been working in bioenergy for long, you know the feeling. We may like comedy, but we hate rejection, so we often procras- tinate and avoid this difficult, yet vital, task. Bank managers are not the enemy, they are the guardians of our savings accounts and are paid to evaluate and minimize risk. So let’s look at what’s required to arrange fi- nancing for your project, rather than com- plaining about the bank’s lack of vision. You may only get one chance to im- press an investor or lender, and that per- son is faced with numerous projects vying for investment dollars. Which of those projects would you pick? The professional answer is: the one that has the least risk, the most available cash, and the best fi- nancial plan. You cannot walk in with no off-take market agreements and no money in your back pocket and expect someone to write a cheque based on your enthusi- he number one stumbling block for a Canadian bioenergy project is a lack of adequate financing. Previously, I’ve asm for the project. Think about why so many announcements are made and so few bioenergy projects are actually built. At a recent bioenergy conference, a bank manager said to the crowd of project de- velopers, “You need a secure 10-year wood fibre supply agreement, an off-take market agreement for five years at 80% of produc- tion, proven cash flow, and 60% equity.” He later told me that he was trying to chase away the ”tire kickers.” I have worked with this lender before and know that he would consider projects with lesser quali- fications. However, your project needs to be prepared for that level of scrutiny. I can guarantee that a lot of prospective bio- energy groups went home discouraged that day; the lesson is that you need to be thoroughly pre- pared before you approach a potential investor or lender. For a bioenergy project to be success- ect to qualify for financing. These days, getting 95% project financing is near im- possible. The more money you have avail- able, the lower the perceived risk and the greater the chance of getting the project financed under attractive terms. 2. Do I have relevant business ex- perience? If, for example, you have never made a biomass pellet or you have no wood harvesting experience, this issue needs to be addressed. The goal is to mini- mize risk and stand out in the crowd of bioenergy project developers. If your skill set is lacking, try to find a team member or committed business partner who can fill “Think about why so many announcements are made and so few bioenergy projects are actually built.” ful, you must focus on the need for financ- ing during the early stages of business plan development. Map out a strategy on how to raise sufficient money. This may be the most difficult part of the project. There are several key components to creating a solid financial plan and attract- ing potential investors and lenders. Ask yourself the following five questions. 1. How much cash am I prepared to invest? The easy answer is “the more, the better,” but realistically, a target of 25% of the project costs is a good place to start. You may need to share the equity risk with other partners to get there, but it’s better to deal with this issue up front, rather than being told later that you don’t have enough of your own capital in the proj- the experience gap. The people involved are very important, as it’s up to them to deliver on the business plan. 3. Do I have a related company with strong credit that can offer sup- port? This could make a huge difference in how the project is perceived, as it shows successful business experience and a will- ingness to put your proven expertise on the line. It is extremely difficult to arrange financing for a bioenergy project that does not want to have its parent company back it or its owners sign personal guaran- tees. If you are a start-up company with no parent company backing and limited cash resources, you should be prepared to look outside of traditional banking and be ready to consider joint ventures or other creative partnerships to access capital. CanadianBIOMASS 29 Financing
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