Pledged Assets as Collateral: How to Secure $250M+ Project Finance

For project owners seeking financing for high-value projects (e.g., $250M+), pledging assets as collateral can unlock significant funding opportunities.

This guide explains how asset pledging works, its benefits, potential drawbacks, and key terms to know, helping you make informed decisions for your project’s financial needs.

What are Pledged Assets?

A pledge of assets as collateral means that a borrower puts up their own assets as a form of security for a loan. 

In other words, pledged assets are tangible or intangible assets offered as security for a loan. In large-scale project financing, these can include:

• Real estate or land
• Machinery and equipment
• Future revenue streams or receivables
• Intellectual property or other high-value assets

By pledging assets, borrowers provide lenders with security, reducing risk and enabling access to larger loan amounts or better terms.¹

Benefits of Pledging Assets

Pledging assets as collateral offers several advantages for project owners:

• Lower interest rates: Reduced lender risk often leads to more favorable terms.
• Higher loan amounts: Valuable collateral can secure larger financing.
• Improved approval chances: Strong collateral strengthens your loan application.
• Flexibility: A wide range of assets can be used, depending on the project and lender requirements.

Cons of Asset Pledging

While a pledge of assets can be beneficial, it’s important to consider the potential downsides:

• Risk of asset loss: If you default on the loan, the lender can seize the pledged asset.
• Reduced liquidity: Pledged assets cannot be sold or used as collateral elsewhere until the loan is repaid.
• Valuation challenges: Some assets may be difficult to appraise accurately, leading to lower loan amounts.
• Legal and administrative costs: Perfecting security interests and maintaining compliance can be costly and time-consuming.
• Covenant restrictions: Lenders may impose strict terms that limit your operational flexibility.

Understanding these risks helps you weigh the pros and cons before pledging assets.

Key Terms to Know

Understanding these industry terms is crucial when pledging assets:

• Security interest: A legal claim on collateral to secure repayment.
• Collateral: Collateral refers to assets pledged to secure a loan.³
• Collateral valuation: The process of appraising the asset’s worth.
• Lien: A right to keep possession of the asset until the debt is repaid.²
• Perfection of security: Legal steps to ensure the lender’s claim is enforceable.
• Covenants: Terms agreed upon by the borrower to protect the lender’s interest.
• Loan-to-value (LTV) ratio: The ratio of the loan amount to the collateral’s value.
• Default and foreclosure: Actions taken if the borrower fails to repay.

These terms are critical for navigating the pledging process and ensuring a smooth financing experience.

How it Works in Project Finance

In large-scale project financing, lenders often accept assets like infrastructure, machinery, or future cash flows as collateral.

This reduces their risk and enables them to offer higher financing amounts. The process typically involves:

1. Asset identification: Determining which assets can be pledged.
2. Valuation: Appraising the asset’s value to establish the LTV ratio.
3. Agreement: Finalizing terms, including covenants and repayment schedules.
4. Perfection: Completing legal steps to secure the lender’s interest.

By understanding this process, project owners can better prepare for negotiations and secure the financing they need.

What is Asset-based Finance?

Asset-based finance refers to financing secured by assets (e.g., inventory, equipment, receivables).⁴ It’s commonly used in corporate finance and project financing, allowing borrowers to leverage their assets to secure larger loans or better terms. Pledging assets is a key component of this approach, making it a powerful tool for large-scale projects.

Ready to explore how pledging assets can secure financing for your project? Click the link below and visit our homepage to learn more and take the first step toward financing your vision.