Marianas Feasibility Study
evaluating the feasibility of a slaughterhouse/meat business
Project components
About the project

Project financing


Enterprise-level financing considerations

·         Project financing considerations

·         Government support

·        Financing analyses and key metrics


Financing a project is usually a case-by-case arrangement.  However, there are certain common factors and approaches that are relevant to financing any slaughterhouse/meat business in the Marianas.

1.     Project financing considerations

·         As a general rule, returns on an initial investment will be maximized if the equity fraction can be minimized and the corresponding debt fraction maximized. 

·        Some government funding may be available to support the project, whether through a grant, a loan guarantee, operational support (e.g., a subsidy for the product or as an off-set against certain expenses), or some combination of the above.

·        The key to any investment is to analyze the anticipated revenues and expenses and move forward only if the margin and returns appear satisfactory while at the same time the risks and uncertainties appear tolerable.

§        This same approach is relevant to a slaughterhouse/meat business in the Marianas…identify the potential risks, develop strategies to mitigate those risks; and identify the key economic considerations and evaluate the projected revenues and expenses to determine if the project has sufficient margin and is economically feasible, i.e., that sufficient net income is generated to ensure repayment of all debt and equity.

§         Banks use a variety of tools and metrics to evaluate a potential loan, one of the most important of which is a detailed project proforma.  Any bank contemplating the provision of financing for the enterprise will likely require these analyses be performed and will likely require that the project proforma shows both satisfactory economic and financial performance. 

2.      Government support

·        In some cases, government support is appropriate and can be arranged to support the enterprise.  (But government funds are not “free” and often times the effective cost of such support can be high, particularly if one values the time, effort, and hassle involved in securing government support.

·         The USDA has several support programs that might be applicable to a slaughterhouse/meat business (and other support programs that might be relevant to livestock producers) in theMarianas.

§         In particular, the USDA’s Business and Industry (B&I) Loan Guarantee program may be suitable for this type of project in the Marianas.  The Loan Guarantee program essentially means that the U.S. Government agrees to pay off the debt to a commercial bank who provides loan financing (the “lender”) in the event the business fails and goes into default.  Because of this guarantee, the risk to the lender drops substantially, and often the lender will be willing to reflect this reduced risk in the form of reduced loan interest. http://www.rurdev.usda.gov/rbs/busp/b&i_gar.htm

§        USDA’s B&I program is managed by USDA’s Rural Development (RD) program.  The RD office responsible for activities in Hawaii and the U.S. Pacific is based in Honolulu.  http://www.rurdev.usda.gov/hi/

·         It may be possible to arrange grant support from a government source…whether from Federal or local government sources in Guam/CNMI. Grants to support “bricks & mortar” activities such as construction of a processing facility are generally difficult to obtain, and few formal programs exist to support such efforts. 

3.      Financing analyses and key metrics

·        The economic model for this project show estimated pre-tax net income from operations as well as pre-tax cash flows.

§        The results in the default model are illustrative only and not to be considered applicable to an actual operation, since they are based on preliminary assumptions set forth in the illustrative calculations.

§         During the period February through June 2011, additional efforts will be focused on compiling additional economic data and increasing the applicability of the model’s analyses and results to potential operations in the Marianas.

·        The financial metrics included in the model for evaluating the financial performance of the proposed enterprise and returns to equity investments include:

§         IRR, or Internal rate of return; this is measured against net cash flow, including the equity investment period (Year 0). 

·         For more information regarding IRR, refer to: http://www.investopedia.com/terms/i/irr.asp

§         NPV, or Net Present Value; this is measured against operating income, only for the operating period (Years 1~15). 

·        For the project illustrative analyses, a discount rate of 6% was used, but this is a user-modifiable assumption in the model.

·        For more information regarding NPV, refer to: http://www.investopedia.com/terms/n/npv.asp