The next step is to ascertain how the project will be financed.  The first task is to figure out which parts of the project will need external financing, and how much, and what can be funded from internal sources or already available funding sources.  A critical analysis of the project activities and phasing in comparison to the city’s budget and plans may reveal existing programs or funding sources which can be used to finance parts of the project. In some instances project activities when appropriately phased or sequenced may lead to a lower cost or less reliance on external financing.

For example a project for flood management may have two components - additional drainage canals and cleaning of existing canals.  The cleaning component may be funded through the existing operations and maintenance budget of the city.  Further, if the cleaning component is executed first, it may create adequate capacity in the existing canals to manage flooding for an additional five years.  Five years may be sufficient for the city to build a fund to finance the additional canal works and completely eliminate the need for external financing or to add to the debt of the city. 

When a city chooses to access external financing for a project it is more likely to be successful (and more attractive to financiers) when multiple sources of financing are blended together.  For example, a project to improve data acquisition and use in decision making for increasing resilience to climate change may combine existing city funds with a grant component.  There are many ways in which different sources of finance maybe blended together depending on the specific project concept.  A grant might be used to leverage additional funds in the form of a loan.  In some cases, a grant might be used to catalyze private sector funds. 

If the city plans to use external financing to supplement its own sources of funding, a plan should be developed to describe what parts of the proposed project the city will pay for, and what parts the external funding will be used for.  In many cases this plan will describe the improvements or capabilities that the city can provide on its own, and how the financier’s contribution can expand on these improvements or capabilities.  In other words, the plan should describe the baseline improvement to be expected from the city’s own investment, and the additional improvement that could be achieved with external assistance. 

Another important aspect of the financing plan is to describe the rationale for the financier’s involvement.  This includes a justification for the use of the grant or loan that is being requested.  Different financiers have different priorities, so it is incumbent on the city to ensure that the project outcomes and objectives are consistent with the financier. 

Once these are completed, the city should consult with the target financier to present the detailed plan.  The goal is to secure interest from the target financier(s) and potentially an in-principle agreement to support the proposed project.