Biodiesel Financing: Equity, Investor, and Debt Funding

Biodiesel Business Plans offers our proprietary dynamic Financial Modeling Tool to give your business proposal a professional look and a distinct advantage.

Personal Equity

Personal equity can come in many forms; cash, land, equipment or other collateral. Debt financing usually requires at least 20% of the total value of the project to be in the form of personal equity or investor funding.

Investor Funding

Investor funding can take many forms, but it all boils down to some amount of cash or other collateral contributed to the project. The most common form is to invest cash in return for a portion of ownership in the project. Returns to the investor may be a shared equity in the business, or a residual return on the fuel sales, or simply a return on investment similar to debt funding from a bank or other lending institution. In the later case the investor acts like a bank, but the funds come from a private source. This may have some advantages in that private sources can be more flexible with the requirements and terms of the loan.

Debt Financing

Debt financing is like any other personal or business loan. A bank or other credit source lends money for the purposes of funding the project. Recently in the last quarter of 2008, we have seen significantly more interest in biodiesel by conventional lending institutions. This is in part due to recognition and success of biodiesel as a different business than other renewable fuel forms. Also a better understand of difference between business models. Older systems may have been very large and required a single source of feedstock. Newer business models that are able to source a wide variety of local feedstock are much more likely to succeed  - and banks are starting to realize this. Some lenders are now requiring as little as 10% down on projects.

Credit Line verses Lump Sum

Our business plans are specifically set up for using a credit line rather than borrowing a lump sum. With a lump sum debt, you pay interest on the entire amount borrowed. With the interest decreasing when you start paying back the loan. This is very costly but may be necessary in cases where the total value is needed all at once. An example of this would be when buying a car. You need all the money at the point of purchase, then you pay back monthly starting on the first month.

With a credit line, you have a general limit of liability set by various parameters. The difference is that you pay interest only on the amount borrowed at that time. This is a much better match for a biodiesel project because during the construction of the facility not all the money is needed at once. Construction and equipment is normally paid for in stages as the plant is being finished, so you don't need all the money at once. When the plant becomes operational, cash flow immediately begins to pay back the amount outstanding.

Our automated Financial Modeling Tool is created especially for bankers who are lending on a credit line, and automatically adjusts for and displays balance borrowed and takes into account interest owed each month as your project matures. You always know where you stand each month. This is extremely helpful and valuable for a lender who is evaluating your project, and gives your business plan an advantage of complete professionalism.

This is a Biodiesel Business Plans exclusive and is all part of our standard business plan.

                                 Typical 10 million gallon facility