What is Joint Venture Financing?

What are Joint Ventures?

A joint venture (JV) is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity.

In a JV, each of the participants is responsible for profits, losses, and costs associated with it. However, the venture is its own entity, separate from the participants’ other business interests.

Understanding Joint Ventures (JVs)

Joint ventures, although they are a partnership in the colloquial sense of the word, can be formed between any legal structure. Corporations, partnerships, LLC’s, and other business entities can all be used to form a JV. Despite the fact that the purpose of JVs is typically for production or for research, they can also be formed for a continuing purpose. Joint ventures can combine large and smaller companies to take on one or several big, or little, projects and deals.

What is Joint Venture Financing?

Structured joint venture financing maximizes cash flow potential for the borrower by including the lender as an additional investor in the project. Similar to a partnership, but only for a specific project, a joint venture is a contractual agreement between two or more parties to share in the costs, profits and losses associated with the venture.

A borrower may not initially be searching for a partner in a project, but some recognize the value of a sharing equity in a joint venture over traditional financing. When joining together with additional investors, your business gains a competitive advantage, since it is now able to pursue larger opportunities. An investor should look to partner with a lender who can create value for the project in ways that they can’t. This value can be anything from more effective property management to asset rehabilitation.