Cash Deposit for In3CAP funding

A relatively new option instead of using a Completion Assurance Guarantee for up to 100% CAP funding is simply a cash deposit from the owner or a sponsor/lender, held as Security, which enables 3x-4x the deposit in mid-market project funding per CAP’s flexible qualification standards and advantageous terms.

The cash serves as an alternative to “Completion Assurance” (accountability to use invested funds as agreed by a contract bespoke to the project) but without involving the added complexity of a bank’s financial guarantee instrument.

The cash is held in a separate “subaccount” and sits until the project funding is drawn down, released in lump sum upon the final transfer.

* It is much 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 the 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 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 cashs.

Compare CASH to a Completion Assurance Guarantee (CAG)

CAGs 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, subject to approval by the funding bank.

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 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.

Whatever the plan, funding via CAP has advantages no other project financiers can offer — streamlined and predictable closings, at any stage of project readiness, 100% funding without initial fees, in any major currency, with flexible repayment out of project cash flows as true equity partners (versus the debt service schedule, based on the duration of time funds are used), acceptance of risks most funders would not consider, currency flexibility, and much more.

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 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 are 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.

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)

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.