Project finance is the financing of long-term infrastructure, industrial projects and public services using a non-recourse or limited recourse financial structure. 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 project's cash flow for repayment, with the project's assets, rights and interests held as secondary collateral. Project finance is especially attractive to the private sector because companies can fund major projects off balance sheet.
Every project needs financing to implement and run it successfully. Project finance is nothing but sourcing funds to a long term infrastructure project, or any other project, and using the cash flow generated from the project to payback the financing procured.
Project finance is often confused with corporate finance, but the two are structurally different. Unlike corporate finance, where a company can directly raise funds from equity and debt, in project finance, the company which invests equity (usually known as sponsor), forms a Special Purpose Vehicle (SPV) which manages the funds procurement and management of the specific project.