What is CAP funding “security” and how does it work?
When In3CAP funds 100% of the required capital, and the project developer contributes no unexpended (new) cash, Security provides a proof point that you are committed — that you have (short-term) “skin-in-the-game”. It’s relatively short term because, like the program’s name implies, we seek mainly to assure project completion and delivery.
Security guarantees delivery of the funding, once contractually arranged, in exchange for your team’s delivery of the operational project and increase in valuation.
This innovative method of securing project funding provides the committed capital directly to the project’s Special Purpose Vehicle (SPV) bank account per an approved draw schedule, and also demonstrates that the developer/owner is materially “at stake” during construction to deliver on what the project plan documents propose.
Project finance tends to favor the incumbents — those who have already financed multiple previous projects — while In3’s CAP funding can offer favorable terms to scale rapidly, as we also work with new teams, first-time developers working in this middle market, with new and “first-of-a-kind”, innovative solutions.
How to make Security work
Traditionally, developers are asked to bring unexpended (new) cash capital — in the form of senior loans, equity investors, tax credits, seed money, grants, or convertible instruments. Such new cash also ensures that the project owner is taking on a meaningful share of the risks longer term. When that’s possible, it helps to proportionately reduce the amount of security needed for the rest of the project funding.
For example, if a project requires $100 million in total funding, but $50 million of it has been (or could be) arranged via one or more of the above sources, such as a senior loan, then the remaining $50 million from In3 CAP would require half as much Security.
But to keep things simple, with CAP funding, developers can arrange 100% financing without the need to give up majority control. You do not need to invest any cash if you bring a qualifying project with short-term Security that you facilitate. The key is to consider creative options for this Security, keeping an open mind, perhaps using unconventional, “out-of-the-box” thinking, if you and your team do not already have access to assets or sufficient balance sheet depth to readily bring your own Security.
Note: Beware of fraudulent “providers” operating fee scams … work only with those who are authenticated (tips)
The Security typically falls away once the project is built and commissioned to begin commercial operation (called Commercial Operation Date or COD). Top three forms of Security used by clients are (in this order) 25-35% cash Surety deposit, 50-75% Standby Letter of Credit, or 100% Sovereign Guarantee.
It is not uncommon for developers to need support with facilitating their own project’s Security. We are happy to work with developers who need this extra support, so long as their project fits our Sweet Spot, though we mostly work with developers who are able to arrange their own project’s Security.
For a complete list of the Security products we offer, with the first 3 facilitated by you, and the last 3 arranged by us under a Management Services Agreement, “done for you”, visit PRODUCTS.
See also these Simple Steps to get started.
What’s new in the world of CAP Security?
There are a lot of ways to make this Security, and well worth the effort. Seems like nobody can be our funding’s advantages, flexibility and affordable terms. For example, if the face value of security required is out of reach, the total amount of funding and proportionate security required can be reduced in a variety of ways, such as via either additional funds (leveraging some debt, tax credits, grants, etc.) or via an innovative Ground Lease structure, if the project site is close to a major US city. Any of these will generate new, “unexpended” cash and lower the bar for Security.
For the most qualified projects, when developers go to great lengths eliminating almost all the risks, using the highest standards for design/engineering, accounting, planning and building a top team for execution, we can also reliably arrange Senior Loans once CAP equity has been committed (more), or a Done For You (DFY) guarantee. Know more
Action Plan: Getting Security Arranged
You contact In3 with a project in our Focus Sectors, and if you seek CAP funding, propose the form of security (SBLC, cash, or another form) and its Face Value relative to total funding you require. The form of security determines next steps. Get started now with these simple steps
Not clear about when Security is needed? CAP funding’s model uses security of some form to arrange advantageous funding for any new/expansion, retrofit or refurbishment construction project in our sweet spot, $25 million or more ($50M preferred). To gain CAP funding’s advantages, clients are asked to facilitate or procure at least one form of security that assures project completion and delivery — as mentioned above, that’s almost always a cash deposit or a bank-involved Standby Letter of Credit (SbLC).
- Compare SbLC with cash deposit — discover which one works best for you
- Can’t bring either a cash deposit or SbLC as security? There are additional Security options, depending on your location (some Sovereign nations can offer state guarantees), access to non-cash assets, bridge loans, or potential sponsors, and/or if your banker knows you are creditworthy. Browse all security options
- What is a “Sponsor” and How might I obtain one?
Know more about “Completion Assurance” Guarantees (CAGs) an asset-backed financial instruments.
Check out these Practical tips for sourcing CAP Guarantees or CAP funding’s Frequently Asked Questions
Still unclear? Request assistance from In3’s team or your In3 Affiliate?
Why CAP’s funding is the best option for most mid-market projects
About CAP funding: CAP’s 100% funding without a loan to repay, within reach at any reasonable stage of readiness is probably unique in the capital marketplace. It is the only project funding that uses security just until all the funding is received (in the case of a cash deposit), or until the project is delivered (for CAGs). “Delivery” occurs once construction is complete and the project is commissioned to begin commercial operations. That milestone is called Commercial Operation Date (COD), when annual CAGs are then allowed to expire on their “maturity date” and fall away.
If you opt to use a cash deposit, it is returned in lump sum on the final drawdown of funds, and can then be re-purposed for more project funding or other uses as you wish.
That’s it! Questions? | Indicative Term & Conditions | In3 Guide to Bank-involved CAGs
Everyone keeps their eyes on the prize of a completed project. Projects then begin to generate cash flows for the equity partners to repay the investment. The exact equity split is subject to negotiation, depending mainly on how much the cash or CAG gets leveraged — which can be as much as 3-4x.
How to get started | Register your project once ready for In3 vetting