Everything You Always Wanted to Know About Joint Venture, Joint Venture Financing, And Joint Venture Agreements

The phrase "joint venture" or "joint venture financing" covers a broad range of potential financial structures with varying joint venture agreements. In the most general terms, it is any financing in which two or more parties known as coventurers share costs, risks, or liabilities associated with raising funds for a project.

By participating in a joint venture or joint venture financing, borrowers can spread risks, minimize credit exposure, and often share in asset ownership. Joint venture agreements are drafted to cover all these points.

In the traditional form of joint venture or joint venture financing, each coventurer raises its share of the funds on the basis of its own direct credit and its ownership interest in project assets. Or both credits are employed where the one with undesirable credit will rely on the one with superior credit. Joint venture agreements do not necessarily address the manner in which funds are raised, though it could be made part of the agreement

In a joint venture project financing, the financing for the venture is raised primarily on the revenue stream and/or assets of the project entity and not on the basis of the sponsor's direct credit. Because joint venture or joint venture financing can take so many different forms, generalization is difficult.

What is important in one project may be unimportant to another. For each project, the primary factors determining financial structure will be the needs and interests of the coventurers. However, the nature of the industry and the tax and regulatory environment in which the industry operates will also influence the way the venture is structured and financed.

The introduction of various forms of collateralization to assist in the formation and financing of joint ventures two decades ago seem to have revitalized the industry, and prospective co-venturers are taking advantage of collateralization that makes these deals easy and fast. To learn more about joint ventures, download our free Newsletter and sign up for our consulting services. 

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