PRACTITIONER SERIES: Cash Deposits

Helping Clients arrange In3CAP’s Security for qualifying project finance.

In3CAP funding’s security is facilitated by Clients as part of pre-qualification, which comes ahead of the contractual commitment to fund their project. At this relatively early stage in the process, some Clients will have questions about how the Security will be held and under what conditions it could be used for anything other than its main purpose, project completion assurance. 

Contractual Language makes Cash Deposit reasonably safe for non-fraudulent clients

Cash is a relatively new option, transferred as a security deposit once In3CAP project financing has been arranged using a segregated account at the family office’s bank. This is the very last step taken before reaching financial closing, following initial pre-qualification, due diligence, and if all goes well, a binding offer with terms and conditions reflected in an investment agreement that first gets duly executed before the cash moves.

There is typically no cost or obligation to accomplish this, with investment agreement highlights shown below. Even without trying to understand this legal language, most clients are willing to play out the proposed arrangements, once pre-qualified, to gather more of the facts. The full contract, bespoke to the client, will become available well before the cash deposit transfer.

In3 and registered Affiliates can help guide this process, confident that a wise decision is a well-informed one. We all strive to avoid snap judgements when lacking either the bigger picture or important specifics. Listen carefully to what others say to you, get inside of it, be sure you understand it, then seek to handle their concerns (true objections are often not stated out loud) as you normally would.

Cash deposits are probably not for everyone. Some people are just not going to be comfortable moving cash, so you can point out that the Standby LC or “Demand” guarantee approach offers more controls. Be careful to not take someone’s unwavering discomfort personally (perhaps it is born of emotion not business logic or rationality; it rarely works to argue about how they *should* feel), … just chalk that up to “neurodiversity.”

Once you have done your level best to persuade them that this is reasonably safe, if they remain unconvinced, probably better to redirect their attention to other Security options.

See also the article about the layered, mutual KYC process and checkpoints that naturally unfold as we work together toward securing CAP funding for qualifying mid-market projects. As well, you can point out that we’ve been doing this awhile via these Case Studies & Testimonials.

Legal Language “template” for the enabling Security

Here’s an approximation of the section about how cash would be handled as Security in the client’s ultimate investment agreement.

Note that every investment agreement is slightly different, tailored to the situation at hand by the respective legal counsels, agreed in good faith and duly executed and then notarized.  All parties are “at will” in this, meaning, free to choose and discuss and hopefully resolve any sticking points. The following language is a sample of how the Security is typically treated, whether in the form of a Cash Deposit or “Completion Assurance” Guarantee (CAG):

1. During the period prior to first commercial sale of
   • 

     Business Planning Assistance

     Read more
   and while the Security [Cash Deposit] is outstanding, Investor covenants and agrees with Client that Investor will not call, draw upon, or encash the Security prior to the first date of commercial operations of the Project, in full or partially for any reason, and thereafter only for
   • (i) gross misrepresentation or fraud or the failure of any representation or warranty made in Article 2 [Representations and Warranties] hereof or
   • (ii) the failure to sustain or extend the Security for the full period prior to first commercial sale of product.   For Cash Deposit, this period [usually] ends with the final draw of funding, per the established Drawdown Schedule.
2. Client shall promptly notify Investor if any of the Representations and Warranties in Article 2 cease to be true and accurate regarding the Client.  In any and all events, Investor’s draw on the Security shall not exceed the amount of the principal advanced on the Funding [per the drawdown schedule], together with accrued and unpaid interest, fees and expenses.
3. Client agrees to provide to Investor any additional information regarding the Client that Investor deems necessary or convenient to ensure compliance with all applicable laws and regulations concerning money laundering and similar activities.
4. Client understands and agrees that if at any time it is discovered that any of the foregoing representations are incorrect, or if otherwise required by applicable law or regulation related to money laundering and similar activities, Investor may undertake appropriate actions to ensure compliance with applicable law or regulation, including, but not limited to segregation and/or redemption of Investor’s investment in the Client.

For more on how CAP funding Security is arranged, the purpose of either the Cash Deposit or a CAG, or points not addressed in CAP’s Frequently Asked Questions, contact your representative or In3 Capital Group.