Project finance (limited recourse)
Project finance is the financing of a discrete economic unit where lenders look primarily to that unit's cash flows and earnings for repayment and to its assets and contracts as security, rather than to the corporate balance sheet of the sponsors. IFC describes project finance as tailored to a specific project, with project assets, contracts and cash flows separated from the sponsor so the project can stand alone as a distinct legal and economic entity, and distinguishes non-recourse structures from limited recourse structures that retain defined sponsor support, often through construction.
Project finance on bank PF and EF desks
On project finance desks the borrower is typically an independent project company owned by sponsor equity. Lenders size debt to forecast cash flows, set DSCR and life-cover covenants, and take security over shares, accounts, plant and key contracts such as an offtake agreement. IFC contrasts this with corporate lending, where repayment rests on the sponsor's overall balance sheet: if a project fails under corporate finance, lenders may still be repaid if the company remains solvent, while under project finance a failed project means investors and creditors can expect significant losses.
Export finance desks meet the same structure when an export credit agency covers capital-goods packages inside a limited-recourse project. EXIM lists project and structured finance among its products for larger transactions in areas such as energy, infrastructure and capital equipment, alongside loan guarantees and direct loans.
Institutional scope under the OECD Arrangement
The OECD Arrangement recognises project finance through a definition rather than a standalone annex. A qualifying transaction involves the export of goods or services to an independent (legally and economically) project company, where the lender treats the project company's cash flows and earnings as the source of repayment and its assets as collateral. Buyer-risk classification for qualifying project finance transactions may be made on a transaction basis, after the application of credit enhancements.
The repayment flexibility that once sat in a dedicated project finance annex now lives in the core text. Where the amortisation schedule does not match the obligor's or project's free cash flow, Article 13 of the January 2026 text permits tailored repayment profiles within constraints: no single repayment or series of principal payments within any six-month period above 30% of the credit, a first principal instalment no later than 24 months after the starting point of credit, and a weighted average life of the repayment period no greater than the larger of 65% of the repayment term or six years, with prior notification for larger credits. The general maximum repayment term is 15 years.
Limited recourse versus corporate finance
Limited-recourse and non-recourse labels describe residual sponsor support during construction and after completion. IFC notes that developing-market projects with material construction risk are generally limited-recourse, with precompletion guarantees or other support, while still treating project success as the primary repayment source. The SPV is the legal vessel that makes that separation enforceable, and the security package over its shares, accounts and contracts is what converts cash-flow analysis into a recoverable claim.