CAP Draw Schedules

CAP funding delivers a set of advantages that usually spell out better terms, faster, and with more flexible evaluation, and thus more certain closings (assuming the parties agree and perform) than the traditional route. In exchange for this certainty and advantageous terms and conditions, funds are delivered in a series of monthly draws that align with typical cash flow demands of new construction projects.

The fact is, when building something, all the funds are not needed to begin construction.  This makes CAP funding ill-suited for acquisitions or mergers.  Retrofits and refurbishments are usually fine with consistent monthly draws, though sometimes vendors need to be asked to be flexible.

This model of monthly draws is mainly because our capital partner is seen as the developer of record in the eyes of their bank, following a long history of building diverse infrastructure and renewables-related projects globally.  Their bank relationship manager knows that all the funds are not needed at once for any new construction project, so to also comply with anti-money laundering (AML) and bank anti-corruption requirements, the monthly draws are pre-approved when consistent or gradually increasing amounts, with schedule transfers contractually committed, a guarantee of full funding delivery.

Depending on the leverage used, we would ask for a proposed draw schedule that uses consistent or gradually increasing amounts each month over a minimum of 12-18 months. As Security leverage increases, draw schedules that gain approval get longer.  Most cash surety deposits use even more leverage than a CAG (compare to an asset-backed SbLC, the next most popular), and thus require longer draw periods, typically 18-24 months or even longer depending on the CAG or deposit amount relative to total funding.

See also item #7 at Safety Checkpoints for Mutual KYC when financing projects through In3

How to construct a Uses of Funds & Drawdown Schedule

Based on your MS Excel financial modeling, the real-world cash demands for your project serve as the basis for monthly draws. Divide the required funds over the course of each year on a monthly basis, keeping the initial draws (critically important during the first 3-4 months) as low as possible.

See In3’s guide to building a Sources & Uses Statement and Monthly Draw Schedule with several illustrative examples:

A proposed monthly schedule that is certain to gain approval uses the exact same amount each month for minimum 10 or 11 months out of each annual period. The total number of months required to complete all the draws of invested proceeds depends on the amount of leverage used for the security. Ask us if you are uncertain.