Project Finance Success & Caution — Wrapup for 2023

Following the pandemic, In3 had pockets of success with delivering value to clients across several sectors, mainly waste-to-value, commercial real estate (slowly coming back, especially when “regenerative” or extremely modern and resource efficient) and innovations to achieve the UN Sustainable Development Goals. The SDGs do have target “deadlines” of 2030, so this has fueled many of the client success stories, especially those in the developing world.

Interesting to note that global trends have made developing world bankers (mostly in North America and Europe) on high alert, partly due to constraints from inflationary pressures, but also due to job preservation, as saying “no” rarely gets anyone fired. Thus, we see places like developing Asia, Africa and emerging markets in Latin America, Eastern Europe, and smaller countries like island nations as key engines of growth as bankers in these markets are more motivated to consider innovative structures like In3 Completion Assurance (formerly “Capital Guarantee”) Program.

CAP funding’s use of a short-term Completion Assurance Guarantee as security has been met with enthusiastic support from bankers in places like Ghana, Nepal, and Uzbekistan. Our success in the developed world was more limited, but heading into 2024 we see new opportunities with sourcing guarantees through in-house and third party partners, such as In3’s Done For You (DFY) guarantee services, also known as Program 4. See checklist of requirements.

How do you finance a project with the least amount of risk, greatest speed and best terms?  First you strip away all that is fake, fraudulent and unproductive, then you focus on what’s left and pick your best options.

If the cost of fundraising is your chief concern, see this comparison table that ranks options from least to most initial costs.

To qualify for our CAP funding, developers and their promoters need only pick a legitimate “real” bank, and although the larger the better, we do not require that guarantees come from top global banks. We often have solutions even if a smaller, regional, low-rated or even unrated bank is preferred, as they tend to be more affordable.  

What to avoid

Here’s a compilation of known “blacklisted” banks that should be noted and used as reference to make sure you are not getting caught in a web of fraud: Blacklisted Banks and examples of fraud (contact us for password).

These are also the same notorious banks often used by SbLC / Bank Guarantee “providers” that offer to lease the underlying asset for issuing the guarantee instrument. We’re not saying that all providers are fraudulent, just that none of the guarantees obtained through these black-listed banks are usable by our bankers to arrange project funding. They might be fine for trade finance transactions, but this is not that.

Fortunately, there are thousands of other, legitimate banks that issue, confirm or endorse usable guarantees. Yes, they typically cost more than the fake ones. Thus far, most “providers” (including those who offer to “lease” a guarantee) that we’ve encountered to date work with one or more of these “fake” banks, so be advised! So, keep reading … you’ll find this awareness helpful to detect patterns of fraud and avoid wasting time or getting taken for a ride.

If you’re not sure this information will be useful to you, it is explained in context at in3finance.com/deciding-which-capital-guarantee-promises-the-most-advantages (click on this link then scroll down to where it says “Fraud Alert”).

These same notorious blacklisted banks are often in cahoots with so-called guarantee “providers” that offer to lease an underlying asset for issuing a demand guarantee, usually either as a Standby Letter of Credit (SbLC or SLoC) or Bank Guarantee (BG).  Such guarantee instruments from blacklisted banks are effectively worthless, but the main ploy is simply to capture a fee for themselves and deliver this worthless instrument to claim they fulfilled their obligations.  In other words, buyer beware! 

To date, we have not found any such providers that are legitimate, but would welcome that first instance. So, if you happen to meet one that is known solid (they do exist, we believe) please let us know after you’ve checked to make sure they do not work with any of these fake/scam banks.

That said, keep in mind that we do not require top-tier banks to enable funding for qualified projects.  Any legitimate commercial bank, rated or not, can be usable.  Of course, the larger the better, but sometimes the fees and flexibility of smaller, regional banks, or even Credit Unions in the US, can be a formula for success.

Some of the solutions to smaller banks and/or smaller guarantees for certain undertakings:

• Some smaller banks would normally be asked to involve a larger “confirming” bank (to take responsibility for the small bank’s guarantee) thus strengthening that project’s funding qualifications.
• If the guarantor is quite creditworthy, avoid all this “noise” around BG/SbLC instruments and instead pivot to a bank-endorsement commercial Promissory Note using our template. This works best when involving a top-rated global bank to provide their stamp (called an Aval), which is more popular in Europe. There are many similarities to BG/SbLCs.
• Developers working with smaller, low-rated or even unrated but still legitimate commercial banks (check to make sure they’re not on the Weebly list shown above) can also take advantage of a special arrangement with European Bank for Reconstruction and Development (EBRD, per the link below), now available in 2022 for qualified projects.

Take care!

Daniel Robin
In3 Founder & Managing Partner