Cash Surety Deposit for In3CAP funding

Instead of using a bank-issued Completion Assurance Guarantee for CAP funding is simply a cash “surety” deposit from the owner or a sponsor/lender, held as Security, which enables at least 3 times the deposit (2.5x-4x) in mid-market project funding per CAP’s flexible qualification standards and advantageous terms.

The 25-35% cash serves as a form of surety — it enables CAP funding’s advantages, without involving the added complexity of a bank’s guarantee instrument.

The cash surety deposit is held temporarily in a separate “subaccount,” a segregated custodial bank account opened in this client’s name, and sits until the project funding is drawn down, returned upon completion in lump sum.

If using a bridge lender, the party bringing the deposit can received interest payments while the funds are on deposit, which can help the project developer/owner cover the cost of a bridge loan. Other common sources of cash can include “monetized” investment tax credits, carbon credits, senior loans (with a lien or UCC-1 filing to secure the loan, but typically on a short-term basis), or for highly qualified client projects, a ground lease structure.

The client will have access to the cash-holding account (login and password), offering some degree of control and comfort, with funds transferred as the last step before financial closing, once the investment has been committed and contractually arranged.

* To arrange optimal terms, it is better to bring a 30-35% cash deposit than to go with the minimalist ~25%. Developers receive more bargaining power and control over the timing of draws and preserve more owner equity (always maintaining majority voting rights) with a larger deposit.

If only the minimum ~25% cash happens to be within reach, either from the owner or a sponsor or lender you would arrange (or combination of these), then we can still try to make that work — just expect longer draws of funds and to sell a bit more equity carried interest.  Binding terms will offered following due diligence, based on a minority equity interest (we do not ask for majority control) with ZERO loan interest to keep the cost of capital extremely competitive, with CAP’s greater speed, flexibility and certainty of closing compared to the traditional route. 

Because Standby Letters of Credit (SbLCs) and other types of bank-involved financial instruments always receive a discount, whether or not backed by cash, a direct cash deposit is more valuable to the project owner and can be leveraged a bit more (25-35% for 3-4x the deposit) used to negotiate incrementally better terms and faster drawdowns of invested funds.

The deposit is released from the subaccount back to the client (or other party as arranged) in lump sum on the final draw of invested capital, and repurposed for the next project, returned to the lender (used to service any debt), or kept on hand for other reasons. This is a matter of preference — whatever you wish to do with it.  See the next section.

Broadly, and in conclusion, some In3 clients like the bank-involved guarantee specifically because it is NOT cash (asset-backed or based on the applicant’s balance sheet).  They understand and prefer the strict rules that balance the interests of both parties with instruments like Standby Letters of Credit (SbLCs) for such funding.

While others prefer cash as it is far simpler, with just ~30% required to access 100% CAP funding with its flexible and affordable terms.  Either way, In3 does not charge any up-front fee when the project owner(s) self-perform, and arrange this for themselves.  See below for how to get started using cash.

Compare Cash Surety to Completion Assurance Guarantees (CAGs)

CAGs like a Standby LC (SbLC) are held until the project reaches Commercial Operation Date (COD), at which time they are allowed to expire on their maturity date.  Cash is released ahead of COD, upon the final drawdown of investment proceeds.

This is why the cash surety is a “deposit” not a “down payment” — it comes back once the invested funds are disbursed, providing options to the party that brought the cash.  When cash is released on the final draw, clients report the following three main uses:

1. Re-use the deposited funds to accelerate the next project’s finance. Rinse, wash, repeat.
2. Use the returned deposit as a cash flow hedge (decrease the need for new or additional cash from investment) to supplement the monthly draw schedule. This also improves Internal Rate of Return (IRR) proportionately.
3. Repay the bridge lender, construction loan or senior loan “sponsor” that provided these funds.  If as a line of credit, see (1), as the line could be paid off and drawn again when the next project is ready for funding.

Advantages of Cash Surety Deposits

Whatever the plan, funding via CAP has advantages no other project financiers can offer:

• Streamlined and predictable closings, at any stage of project readiness, as nobody argues with cash
• 100% funding without initial fees, with the deposit in any major currency
• Up to 100% funding as entirely equity, with no added interest expense* 
• Flexible repayment of investment out of project cash flows as true equity partners (versus the debt service schedule, based on the duration of time funds are used, with payments inherently less flexible than equity)
• Acceptance of risks most funders would not consider, currency flexibility, and much more.

* Although CAP funding is fine with senior debt or other sources of capital (grants, etc.) in the capital stack, it is usually to your advantage to leverage available cash as a surety deposit, even if it incurs some interest expense.  Why?  A short-term surety deposit of 12-36 months, typically, can be amortized over the life of the project and ends up saving considerable interest expense relative to any longer-term senior debt’s interest expense (at going rates).  The amount of savings depends on the project’s unlevered Internal Rate of Return (IRR).

One last difference worth noting: Standby Letters of Credit (SbLCs), and other types of bank-involved financial instruments, always receive a discount, whether backed by cash, non-cash assets (even those that are illiquid), or a balance sheet that does not require collateral at all.  Thus, if cash is available, using it directly as a surety deposit is your better option.

How to work with Cash Deposits — Next Steps

There are three possible ways to confirm the availability of cash in order to get under binding terms (if all goes well during due diligence):

A. Use our Authorization to Verify (ATV) letter (download this MS Word template) to show capacity

B. Direct email between the involved banker that is familiar with the status of the bank account, which is what the ATV letter also accomplishes, more as a formality

C. Put the cash deposit into a lawyer’s trust (IOLTA) account and obtain legal attestation that said funds will be available as the deposit in the event that the parties enter a binding agreement to fund the project.

Both a cash deposit and CAG (such as SbLC) require a signed ATV letter, however with cash, the two additional options, B and C above, are also available.

ATV letters are issued by the account owner known to the involved banker. This is not a commitment to send the cash or guarantee but rather an acknowledgement of capacity to do so. The banker’s Email reply launches due diligence at no cost to the project owners, and if all goes well, leads to a binding offer to fund, via term sheet and/or negotiation of the funding contract. Once entered, then the cash deposit or SbLC would be delivered as the last step before financial closing and initial draw of funding.

The deposit is secured by the investment agreement. It cannot be drawn, moved or transferred except …

1. By the client in case we do not deliver per the investment agreement, or
2. After the final draw of funding, at which time it is released (per investment agreement).

When NOT to use cash as the deposit: Do either of these conditions apply to you?

• If you do not have access to cash, nor to someone who does (such as lender, wealthy colleague, etc.), but you do have access to other assets, perhaps through a sponsor …
• and/or if you are just not comfortable moving cash or cash equivalents under any circumstances (keeping in mind that a binding investment agreement will first be negotiated, signed and notarized before being asked to do so, the final step before closing), …

… then a bank-involved instrument or short-term “hypothecation” of securities (rated bond, MTN or gold with SKR) are your better options. Explore to know more about bank-involved instruments (SbLCs)

If none of the above options are within reach, and you are working in or near a major US city, consider this newest option for 2025, with the potential for 100% financing using just the land, Ground Leasing.

All starter templates are available at CAP Funding Proposal Builder

Why In3CAP? CAP funding is not only more predictable than traditional project finance, but also far faster, with a quick yes/no (we call this “pre-qualification”), usually within just a few days, and closings typically 30 days or less upon delivery of either a financial guarantee (a “Completion Assurance Guarantee” or CAG) or proof of capacity for a cash deposit. CAP funding indicative terms.

Use our Simple Stepwise Guide for further specifics, ask questions, or register to get started.