Due Diligence Requirements for Project Funding

To help project Developers prepare and easily pass Investor Due Diligence

Standards for due diligence depend on the lender or investor.  More traditional lenders, and variations on loans like convertible debentures or bond issues, tend to consider “bankability” standards such as how much “skin in the game” the developer already has — cash investment, sweat equity, and/or new money alongside the loan to take on a meaningful share of the risks (there’s “safety in numbers”) — while In3 CAP funding does bother with any of that.

1. In3CAP:  equity partnership formed with a Completion Assurance Guarantee (CAG) for 30-70% of the project’s funding above $25 million.  CAP is In3’s flagship program (overview, FAQ or get started with these basic steps) provides expedited capital with zero up-front fees when you facilitate your own CAG.  We offer extensive tools and step-by-step instructions to make the possible.  Download guide.
   Or for premium “Done For You” (DFY) service, learn how we can help arrange a guarantor for highly-qualified projects from top-notch developers that fit In3’s stringent guidelines.  Do you qualify for DFY?  See also: What makes CAP different?, 1-page CAP “teaser”, or CAP funding synopsis.
2. Senior Loans or Minority Equity for advance stages of readiness:  Program 2A costs $25,000-$100,000 for vetting and due diligence to get under contract (binding terms sheet) for 100% loan-to-cost if above $100M, with $250M preferred, interest rates range from 6%-8% APR based on project profitability (unlevered IRR).  Senior loans use the highest standards for de-risking and may require insurance, equity contribution, or both.
3. Lines of Credit:  25% down payment (made just before closing, once under contract) but with minimal or no vetting fees. 100% nonrecourse, Loan-to-Cost (LTC) project or business line.  Program 7 has no significant upfront vetting fees. About 60 days to funding.  $25 million minimum.

Not sure where to start?  Consider In3 Management Services to advise on your best options for funding.  We can help you identify and arrange debt only, equity only, tax equity investors, convertible instruments, financial instruments, or hybrids of these with no preset minimums.
Apply here or contact us to gain a competitive edge with In3’s advisory services. 

Comparing In3’s flagship CAP Funding to Alternative Programs

Here is a synopsis of In3’s alternative offer for funding mid-market projects — Comparing CAP (Program 1) to Loan Programs 2 through 7 so you can pick your best option(s).  We are partnered as authorized representatives to these lenders, up to 100% loan-to-cost (LTC), new for 2023, available at quite reasonable terms, all based in North America but with global reach.

There are very few country, sector, or size restrictions (above the minimums, avoiding sectors we do not consider part of our wheelhouse), but to obtain a binding offer for any 100% LTC program requires cash from the developer ahead of closing.  The amount varies from $75,000 for slightly higher APRs (actual rate determined upon offer of binding terms, in some cases based on the unlevered IRR; all but $25,000 is refundable) to 25% of total funding as security deposit for the lower APRs.

Program 1 (CAP funding):  A mix of mezzanine debt and equity, to be negotiated upon completion of due diligence.  No initial costs.

Program 2:  Senior Debt or Minority Equity, $75 million and above ($150M+ preferred), $100,000 total cost to get under binding terms, with maximum 60 days to funding if all goes well during pre-contracting and due diligence.  Effective interest rates have gone up since inception, and the actual APR will be negotiated between client and lender.  No cash is required for initial evaluation, but as of October 2022 we do charge a deposit of $25,000 for vetting to access any of these 100% loan-to-cost options.

Program 3: Hybrid of CAP funding and one of the senior loan programs, preserving owner equity.  Bring the guarantee yourself.  Flagship CAP funding pairs well with senior loans

Program 4:  Hybrid of CAP funding and one of the senior loan programs, preserving owner equity.  Guarantee done for you.  Working with In3 Capital to secure CAP Funding guarantors as a DFY service

Program 5:  Discontinued.

Program 7:  25% cash where lump-sum transfers are available upon request.  Borrower receives 4x the amount of deposit.  Interest rates 6-12% APR.  More

In3 Service Options

The only program without some initial costs is CAP funding.  Compare  The rest all involve at least $25,000 Management Service Agreement (MSA), with a flat $5,000 fee to secure a fulsome evaluation of current status with recommendations for the best funding options.  This initial fee can be credited to the cost of subsequent Management Services; see our Engagement Letter.  All services

Questions so far?  Ask us.

Understanding Your Project Funding Options

Programs 2A/B and 7 are all non-recourse, senior loans, where initial cash is used as a security deposit and defrays the lender’s risk and due diligence costs to deliver a binding offer (term sheet or loan contract).  CAP funding’s loan is also non-recourse, but with no senior lien required.  Any security deposits are refundable if there is no interest expressed, and Program 7 allows cash deposits to either service the debt or is effectively a refund of the initial 25% so that only 75% of the total loan funds need be repaid.

Again, only CAP funding (Program 1) is without some initial costs.

With either P7’s 25% down payment, or CAP funding’s 25% deposit, the borrower receives 100% (4x the deposit) in proceeds.  Timeframes to funding are similar — at most 60 days, typically if the project’s documents are in order and key facts verified — but getting started can take considerably longer if project finance industry standards are not adhered to. Deposited funds are not under In3’s authority, but instead held in separate accounts, and when the loan or line of credit is funded, provisions are made (such as via an escrow-like IOLTA account or paymaster account) to secure the funds or instrument.

Bottom line, if you have absolutely no cash available, In3 CAP and a sponsor or backer for the guarantee may be your better option.  If guarantors seem out of reach, that is a common presumption, and perhaps worth finding a creative solution.  CAP funding is much more likely to actually reach financial closing in a timely manner when the project is either at a relatively early stage, if you are in a hurry, or if the project’s IRR or debt service coverage ratio (DSCR) is not otherwise bankable, in which case, CAP funding may be your only option.  Recap of when CAP funding is your best and only option.  

Note that In3 does not charge anything in advance for this level of service for CAP funding; we do offer premium services for select projects seeking to secure a CAP guarantor (more) within our focus sectors.

These programs comprise the best-in-class offers for project funding. We strive to make private funding accessible and affordable to diverse developers worldwide.  We welcome your feedback and suggestions!

Qualification basics for up to 100% LTC In3 partner loan or line of credit:

• Industry sector:  almost anything, but we have a preference for renewables, infrastructure, or other sectors that offer social/environmental benefit.  Complete list
• Minimum loan size: Most are $25 million minimum, non-recourse, with a preference for $100M or more.  Program 6 is between you and your bank.
• Location & Commercial Standards: 
  • Projects can be located almost anywhere — just not US-restricted countries, presently N. Korea, Russia, or China.
  • The project fundamentals must meet international accounting standards (such as IFRS).  Projects are ready for funding once they are commercially sound (no serious business risks remain) with a well documented dataroom that includes a US GAAP or IFRS-compliant financial model (in MS Excel) and project business plan.  Need help with that?
• Stage of Readiness:  all loans require very close to shovel-ready status, also called “Ready to Build” (RTB) or upon “Notice to Proceed” (NTP) in some sectors:
  • Three programs (1, 2 and 5) will agree to fund the loan to procure the land/site prior to beginning construction.
  • Developers that mitigate (eliminate) most or all commercial risk, technology risk, country/political risk, and ultimately credit risk, stand the best chance of securing funding.  In some cases, insurance can be obtained (allow a $10,000 flat fee and 1-2% of the total funding requested for Program 2 risk insurance) with additional measures such as use of Condition Precedents ensuring that product purchase/offtake agreements will be signed, or performance-based loan covenants.  Depends on the industry sector and type(s) of risk.

How loan terms, conditions and procedures differ from CAP funding:

1. Preparing for Due Diligence:  As mentioned above, if not using In3CAP funding, developers seeking this alternative, non-recourse funding requires that the file be completely buttoned up, presenting just the pertinent facts, and transparently so.  Due diligence is more traditional, detailed and largely inflexible, with careful scrutiny of any remaining development steps (such as the need for permits, feedstock security and/or offtake agreement).  Why?  These steps, until successfully completed, typically reflect risk exposures, perceived or actual. At minimum, there will be some degree of execution risk, which simply asks “what can go wrong?” as the developer finds solutions to inevitable problems that crop up.  Until all contracts are signed, with strong vendors or counterparties, permits obtained, and a flawless package delivered, risk-averse project finance standards can be prohibitively stringent. Conclusion: Early-stage projects that require additional development work will only be able to secure CAP funding. This is one of CAP’s advantages: it solves this conundrum.
2. Interest rates:  The fixed rates of interest for these loans tend to be on par or higher than CAP funding’s ~7% (SONIA + 2.5% fixed) APR, but the offer must come from the lending partner, so obtain an indicative offer at the time of application.  All lenders are fine with early repayment without penalty.  Lengthy interest-only (deferral of principal) periods of up to 3-5 years available.  Program 7A is a line of credit that can be drawn and repaid one time.  Program 2B is a revolving line of credit that can be drawn and repaid and drawn again.
3. Security or Credit Enhancement:  All loan use either a senior line (Programs 2A and 2B) or UCC-1 filing.  Only Program 7 uses a cash down payment that does not earn interest during due diligence, but is effectively returned upon funding, so that only 75% of the 4x deposit is repaid.  All loans can also be refinanced, or repaid quick, if combined with In3 CAP funding, such as is Program 3.
4. How will you know if the loan is forthcoming?  The traditional process of mutual, stepwise discovery, without In3 CAP’s initial “pre-qualification” cycle, makes this harder to predict, which usually makes it slower to reach closing and draw down loan proceeds.  Still, there are predictable stages to reaching binding terms, varying in duration from 3-4 weeks (Programs 2 and 7, if all goes well), to several months. Typical is 45-120 days from start to first funding, but we cannot know in advance if you are adequately prepared and your funding request is actually going to qualify.  We aim for complete candor and to avoid any false starts.  Quality opinions and gaining commitments can take time if the requested info is not immediately forthcoming.  Program 2A’s lenders take quite seriously their Letter of Interest, and will not issue it just to seem helpful or encouraging.
5. What risks are or are not acceptable?  Once closed, credit risk with these non-resource loans is largely mitigated by perfecting a senior lien against the operating assets, or ICC-1 filing if in the US, as well as credit insurance (P2A always requests this), which is often suggested.  In practice, reaching financial closing depends on the perception of market risk, country/political risk, any technology risk or execution risk (the track record of the technology and people involved). The meaning and interpretation of such risks will remain largely unknown until after due diligence (note that CAP funding bypasses this, once pre-qualified), but no deposits are retained if the project doesn’t reach closing.
6. Who pays for due diligence?  Except for CAP (zero upfront costs if the developer pre-qualifies), the developer is expected to cover the costs of vetting and due diligence to obtain a binding offer.  If you obtain a Letter of Interest (LOI) from Program 2A’s underwriters, that is a very good sign that the loan will likely gain approval under binding terms, but only the results of due diligence deliver certainty.  Some of the loan’s terms can be negotiated, always in good faith.

Now for the good news

On the plus side …

• These featured lenders do not expect a Financial Guarantee at all (neither as  completion assurance nor as a loan guarantee; the difference).  But without that completion certainty, binding contractual arrangements for funding will involve greater scrutiny, are less forgiving, take longer and usually cost more (everyone invests more extensively in due diligence, usually including a site visit), and success also hinges on solid, well supported “pro forma” financial projections showing sufficient operational cashflows and debt service coverage.
• You keep all rights to operational cashflows.  All three lenders (Programs 2, 5 and 6) will enable up to 100% financing of project costs as debt, not an equity partnership.  Programs 3 & 4 are a hybrid of CAP funding (Program 1) and Senior Debt (Program 2 or 5), whether DIY — where you or and In3 Affiliate “do it yourself” or you hire In3 for DFY (“done for you”) premium services.  This is an innovative approach to financing projects that has advantages for all parties — developers keep more of their equity rights to cashflows while the lender receives better upside at lower risk than would otherwise be realized.
• Your prior investment and any “new money” helps secure funding — Loans do typically require some significant new cash (“unexpended” funds) from the developer, decreasing the total funding they would provide, as well as prior investments (“skin in the game”) plus a sharp financial plan with underlying assumptions based on verifiable facts.  For example, most lenders in Commercial Real Estate prefer a third party Feasibility Study for validation of the business plan.  To qualify, banks usually also require 3 years of audited financial statements, and although such financial accounting can be helpful, not required for In3 alternative funding.

“Tear Sheet” Program Summaries

Which program is right for you?  There are tradeoffs.  Completion Assurance Program (CAP, Program 1) delivers advantages that none of the loan programs offer, but all loans, including the first one (Program 2) preserve owner equity.  Sometimes the answer for larger projects is to combine the flexibility of CAP funding with the equity preservation of a senior loan; we offer a “services bundle” via Programs 3 (DIY) and 4 (DFY).  More on this unique hybrid approach

That said, all four of these loan options will agree to 100% loan-to-cost (LTC) as non-recourse debt, $25 million minimum, without many sector and geographic location restrictions (same as CAP funding).  All APRs are fixed rates, quoted as of August 2023, where the actual APR will be based on the lock-in (closing) date.  Programs 2-4 all require a vetting fee of $25,000 for delivery of the vetted package and due diligence preparation through In3 management services.

Program 2A (1-page Tear Sheet) relies on an experienced underwriter that works with a network of PE investors to form debt syndications, but only when the project fundamentals meet their standards and file is completely buttoned up.  By contrast, Programs 3 and 7 are Lines of Credit with greater flexibility, but both require a 25% cash security deposits.  Slower Program 3’s deposits can be either returned or used as debt service coverage reserve or to finance the next project.  Program 7 is newer, so we appreciate your patience with testing the waters and limits when project funding steps outside the norms.

There’s no penalty for early repayment of any loans, so it is fine to refinance early or pay off these loans as quickly as cashflow allows.

Similar to In3’s CAP funding, our alternative funders’ known terms and conditions reduces some of the traditional administrative complexity and developer risk.  We usually know what will and won’t pass muster.  Except for CAP funding, you are asked to cover a vetting fee to ensure your financial model is complete and properly organized, transparent and investible so that your project is seen as entirely financeable per more stringent standards than In3’s project equity partner.  When large enough, and preferable, developers can benefit from combining CAP funding and a direct loan (more).  We don’t require other sources, but when available, they serve to preserve owner equity (carried interest) rights to cashflows and decrease the size of the Completion Assurance guarantee that CAP funding requires.

Ask about In3’s convenient one-stop-shop services streamline the process, from inception to completion.

Next Steps

Consider what might be the right sequence of sources to reach your goals.  What would your “capital stack” look like, ideally, by the time your project or portfolio is fully funded?  Do you need or want an equity partner helping to ease subsequent funding milestones?  Or is some initial cash available (whether from the developer, sponsor, or third party bridge lender) to enable 100% LTC via one of the three Loan Programs?

We can also help sort this out if you wish to consult with In3; just ask for “fundraising / capital formation / investment strategy” services.

Or, if clear enough to proceed, use our Onboarding System to apply.

Why we prefer CAP’s innovative pre-qualification process

Both In3 CAP and the above loan options offer 100% financing, with CAP offering itself a “hybrid” combination of debt, and usually minority equity carried interest.  None of our funding programs seek control — and our contracts always make terms and conditions transparent, as we have no need desire for a controlling interest.  This removes complexity and expedites project capital by working with knowledgeable people that will give you straight answers to your questions.  But CAP’s advantages are speed, greater certainty of reaching closing — due to our unique pre-qualification process, offering early yes/no clarity — and greater flexibility in handling the remaining risks and soft costs, from technology risk to execution risk to associated pre-construction risks such as gaining signatures on land lease/purchase agreements, grid interconnection agreements (such as for power generation projects), permits and studies, environmental and consulting engineers reports, … whatever is needed to reach Commercial Operation Date.

Better to stop guessing about what lenders or investors expect, and assure completion funding will be available, a pre-commitment to begin commercial operations, which is where all the hard work pays off.

Two examples of how this makes CAP funding faster and better:

1. Our family office partner does not object to technology risk, nor do projects we fund require complete shovel-ready status), thus often enabling access to funding at better terms than could otherwise be arranged.  A so-called Warehouse Facility (a type of venture capital or collateralized bridging loan), Construction Loan, or Development Capital are far more expensive than our funding programs.
2. Using our pre-qualification process “tests” the funding scenario, step by step, without any obligations or up-front commitments.  We can usually offer better terms and conditions than other available options.  CAP funding can handle RAIN scores below 85, while traditional project finance would not work without additional out-of-pocket investments by the developer to reach a more advanced state.  Synopsis of CAP.

How to secure this funding and build your Balance Sheet

Please pay attention to our online disclosures to ensure there’s a fit, and consider using our free readiness assessment, RAIN.  Once you apply for funding or other services, you will be included in relevant updates and notices.

Contact:
In3 Customer Relations
+1.831-761-0700 Ext 1

* The above is for informational and educational purposes only and is subject to change.  It is not intended for the buying, selling or trading of securities, or the offering of counsel or advice with respect to any such activities. All due diligence is the responsibility of the Buyer and Seller.  This website and any related documents are never to be considered a solicitation for any purpose in any form or content.

More on these options at New Client Resources or Apply now (onboarding) to get started.