Why Completion Assurance Guarantees make ALL the difference
Have you noticed that otherwise strong project finance proposals often go unfunded or take seemingly forever to reach closing with qualified investors? Why is that?
Perhaps your team has been struggling to get to traction, or difficulty with reliably reaching closing at the terms you prefer? Even with insurance, such as performance insurance or completion bonds, investors/lenders can be standoffish and reluctant to support otherwise worthwhile projects.
You may be asking yourself why this process of getting under contract with investors in mid-market projects is often so unpredictable and difficult. The fact is that capital markets change constantly, but people are also prone to following their gut and ignoring data. We know quite a few polished professionals (gatekeepers and underwriters) who, if you asked them “How do you decide what deals to fund” they would give you a rational-sounding list of criteria, but at the end of the day, none of that matters if you can’t get their attention, respect and due consideration. We humans are prone to snap judgments even when we think we’re being uber-rational and patient.
Very few people manage to remain steadfast and consistent every day. We are human, fallible and often emotional creatures — especially when there are large sums of money involved.
Managing Risk/Reward
Why do most financiers expect some cash on the table? And why is it that when there is time pressure from the developer’s side — genuine, milestone-driven urgency, not just “hurry up, because I said so” impatience — that some investors/lenders respond by going even slower?
If any of these scenarios mirror your experience, In3 Capital Group may have a solution, as we offer direct loans and investment capital into project companies in emerging markets and developed countries using financial guarantee — either a Standby Letter of Credit (SBLCs are bank-issued guarantees, often called a Bank Guarantee or BG outside the US), Sovereign Guarantee (SG) with bank verification or Avalized Promissory Note (AvPN), as short-term completion surety or security.
For many developers, In3’s Completion Assurance Program™ (CAP) is a game-changer for developers seeking to fund up to 100% of qualified mid-market projects. Decision-making guide to select the right completion guarantee option
Get started with CAP funding | How to qualify | Simple Steps Guide | CAP Proposal Builder (all templates)
New client Resource Center with additional options.
Go Slow (at first) to Go Faster
We often hear developers say “Show us the money and we will talk about Terms & Conditions (T’s & C’s) [for the loan or investment].” That’s fine, except for one thing: we first need to know your project(s) actually fits our deal fundamentals, as our partners place capital based on a well-proven investment thesis. Otherwise, without that first step, we could be wasting each other’s time.
Our funding program becomes reasonably simple and straightforward once you gain basic familiarity, but discuss the situation with your In3 Affiliate or financial advisor to appreciate some of the finer points. During this orientation period, we only ask that you keep an open mind to understand what guaranteed capital is, and how it works. This is not the traditional, highly risk-averse approach to project finance, so most of our clients consider this preliminary phase a way to go faster, while the first few steps of orientation and discovery may require a bit of reflection to make sure you are tracking. Are you willing?
Like the metaphorical “sharpening the saw” (if you are familiar with Steven Covey’s Seven Habits metaphor) — if you keep ‘sawing’ with a worn-down blade you don’t get much done. Unless you just want the exercise of sawing, we can offer a sharpened blade that rapidly slices through the usual run-around, avoids wasted time, uncertainty and the extra steps involved with traditional project finance, mostly encountered during due diligence, designed by the funder to eliminate all apparent risks.
Instead, we transfer some of the risk of project non-completion to a guarantor, but accept the uncertainty (and costs) associated with paying for any remaining project development steps, developer execution risk, credit risk, any political risk, even some technology risk. Does that seem worth having?
There are no up-front fees to reach pre-qualification, so you have nothing to lose.
New for 2024, we can now also accept 25% or larger cash deposit instead of a guarantee, for 4x the deposit, as an equity partner (flexible repayment terms). Compare these two main options
Check out our Frequently Asked Questions about this flagship program. Here’s a common question not included in this FAQ:
“We have a guaranteed customer, so why all this talk about risk?!”
Most of us prefer not to face the realities of what can go wrong. But project finance is extremely conservative, and investors look not at the average case but at the worst case scenario. Having this conversation with open eyes is part of our job, ensuring you de-risk and present your request for funding in the best possible light.
Our CAP funding model is the ultimate in “all win” — though not for everyone, we realize — because it lowers your risk while increasing the odds that everyone will get paid. Traditional project finance cannot boast that it is reliable (predictable in the ways that matter), ensuring that the path to financial closing and the transfer of funds is locked down and pre-determined.
A long-term purchase agreement from a credit-worthy offtaker is a step in the right direction, but what if the project itself doesn’t get approved by the government, if the interconnection or commissioning process encounters issues, if the contractors or subcontractors run into unforeseen problems? Then what? We are proposing that those risks and many others get mitigated so that the developer and other stakeholders/counterparties gain leverage and additional incentive to work things through in a cooperative manner. The use of a financial guarantee during construction means the project assets will be completed, with all the required funding pre-committed and locked down by our partner’s sending bank.
Fewer remaining risks in a funding proposal enables more attractive terms for financing, including faster and more reliable closings (what good is a polished proposal that causes investor heart palpitations?), and more flexibility in how funds get deployed.
Mitigating commercial risks with a credit-worthy, long-term customer makes great sense for any project — the business is much more likely to work out well for all stakeholders. From an investment perspective, however, it is not the most important risk — fundamental credit risk and assurance that the assets get built and commissioned on schedule are foremost in obtaining the favorable capital terms, where the funding is also reasonably fast to secure (we offer financial closing within 30 days from receipt of the guarantee) and flexible conditions (see S-words 1-3 above).
Another advantage of In3’s CAP funding is its predictability and replicability, a rare and beautiful thing in project finance circles. This enables us to offer you the following pre-determined indicative terms.
Compare CAP funding terms to our other in-house pathways to 100% financing (there are 3 options), and you’ll notice that CAP debt is much more affordable, the process faster and more predictable, and that CAP funding is more accepting of various other risks (besides non-completion), you can finance projects with lower IRRs and at an earlier stage, even when there are more development costs involved before reaching shovel-ready status.
How financeable is your project? In3 services, starting with the RAIN assessment, can help you quickly answer this question as well as organize appropriate risk mitigation strategies to expedite closing.
Some examples of what we offer:
- Completion Assurance Program™ — whether from a private source (a company with a strong enough credit rating), from a government (Sovereign Guarantee, or SG), or a Bank Guarantee (BG, usually as a Standby Letter of Credit), or private company (as a commercial Promissory Note with bank’s aval, or AvPN), financial guarantees are a promise by the guarantor to stand for (assume the debt obligation) of a borrower in the event of default prior to Commercial Operation Date. Some of these instrument involve fees from the bank, while some do not. Why obtain a completion assurance guarantee? The extra effort of obtaining a partial financial guarantee pays massive dividends in terms of making more affordable capital more easily within reach. Projects qualify for these terms, the best you will likely find, and greatly expedite the process. Typically capital is either fast or inexpensive, but here you get both!
- Risk and readiness evaluation (called “vetting”), to prepare for investor due diligence.
- Expert Advisory Services — assistance to develop and de-risk projects to streamline financing (by the hour | tailored and bundled within a precise scope-of-work).
How does In3’s Completion Assurance [formerly Capital Guarantee] Program work?
Request a short video (15 minutes) that shows our process visually.
Whether from a bank or sovereign government, a financial guarantee is not a form of capital, but instead it (a) preserves cash capital and (b) is more safe/secure than cash, (c) does permit and enable access to capital at the most attractive rates and flexible conditions, and (d) ensures that the project team will complete construction and gain commissioning to commence commercial operations.
By improving a project’s financeability and borrowing power, the terms, timing and probability of completing the finance transaction greatly improve. You can chase financing for years and not discover that the cause happens to be a minor detail (seen as a fundamental flaw in the eyes of institutional invests), and quite solvable if approached properly.
Many of the risks are embedded, and the investor knows this. Responsibility for completion of asset construction and commissioning is entirely in the hands of the company, so an instrument like a sovereign or bank guarantee can transfer those risks to another party, thus ensuring that the project company does its part.
In this sense, the financing guarantee works like a completion bond (insurance), as it is only kept in place during the construction period, typically 1 year, but sometimes renewed for additional years, until reaching Commercial Operation Date (COD) or as required in your Loan Agreement.
This is vitally important because all impact project investors, whether non-profit (philanthropic), or for-profit, are inherently risk averse. Thus, taking the recommended steps now can make the difference — shifting from perpetually hunting for money to actually securing it on advantageous terms and conditions. More on In3’s Completion Assurance Program™.
If you have no ability to obtain a financial guarantee, because you do not have sufficient financial depth, and you also do not plan to hire any contractors to cover at least 35% or more of your budget, then please assess how prepared is your project for investment using our fast and free Readiness Assessment. RAIN provides a “snapshot” of your readiness to receive funding (the last of 9 multiple-choice questions is about the more traditional loan guarantee, for the life of the project’s loan, more typical of institutional lenders)… just be sure to register your results after the screen appears with your scores (hit the “Continue” button upon completion), so we can discuss your best options.
On risk insurance: Political Risk Insurance provides equity investors in any project coverage against
(1) Expropriation,
(2) Political Violence, and/or
(3) Currency Inconvertibility.
Coverage is also available for regulatory risk (such as feed-in tariffs or power purchase agreements), carbon credits, etc.
Generally, financial guarantees can be used in combination with performance guarantees and completion bonds (insurance), or other methods of ensuring that projects get built and operate per the financial projections, to avoid the need for most PRI coverage.
More on In3’s project Completion Assurance Program™ (CAP) funding