In3CAP and the Cost of Project Capital

In3’s various 100% financing options are all full-leverage, non-recourse capital, mostly for mid-market Project Finance, but with two that can accommodate venture capital as business lines of credit.

Definitions: “100% leveraged” (aka “full leverage” or “fully leveraged”) funding simply means that the entire capital request can be satisfied from a single source. This contrasts with most bank or other institutional loans that expect not just collateral, or a loan guarantee, but also some new cash contributed by the borrower.

It matters to lenders that the developer/owner have some “skin in the game,” so it is important to show what prior development expenses have been paid for by the project team (called “seed” money in the venture world). Most lenders expect substantial “unexpended” (new) cash from the developer or another party to take on a meaningful share of the risks.

Or, alternatively, project teams can obtain a Completion Assurance Guarantee (CAG) from a party that believes in the project and wants to see it get built and operational. We call such a party variously a guarantor, sponsor, backer … that will want to know you have a solid the depth of your business plan.

Both previously spent and new cash constitute “skin in the game” with unexpended new cash (project equity) commitments strongly preferred, but often just not available when the developer either had limited asset depth to begin with or has already plowed all available resources into building an investible funding proposal.

100% debt funding (a loan) is not widely available, and may be less so later in 2023. Full leverage funding still must satisfy stringent qualification requirements placed on the borrower/developer/owner.

If at an early stage of development, not yet entirely ready to begin construction, the options are to either use Program 1 CAP (Family Office) funding and/or hire In3 or someone else to finish the development work as the project proposal must meet industry expectations for readiness and risk versus reward.

Sometimes insurance can be obtained to lower the perceived risks (most important one is business/commercial risk), making projects more financeable, and we can often help arrange such insurance, when needed, but without significant upfront investment in the project’s development, the team may not be able to obtain insurance coverage.

Nutshell of Cash or Assets Required for 100% funding:

Other important factors include the annual interest rate, whether or not a given project can qualify for the more stringent standards of senior debt, and profitability (as measured by unlevered IRR), all of which can influence the optimal source of funding. Only CAP is without some initial costs, can accept lower IRRs and can finance at an early stage even if various costs and risks still remain.

Thus, the project’s financial model must be quite accurate, and the only way to be certain of this is if it conforms to proper accounting standards (IFRS or GAAP), which then tell the story with numbers and determine whether or not there is a business case for funding the project along any given pathway.

You may want to have In3 check your MS Excel model to determine if it is complete and adequate to secure funding.

Here are the initial costs by Program explained in sequence from least initial costs to the highest:

• Program 1 — In3 CAP: No initial cash, but a Completion Assurance guarantee of 30-70% or more, which may require a pledge of assets to a bank, or a “sponsor” to participate in assuring the project gets built and becomes operational. CAP delivers both equity and debt finance, in proportion, up to 100% (full-leverage) of the required funding.
• Program 2 — Senior Loans: Project Loans up to 100% of the budget that require up to $100k in fees, with a series of safety checks or milestones. Initially $25k to In3 for vetting, auditing and improving the financial model (to ensure that it upholds accounting standards, either US GAAP or IFRS), assisting with the funding package — proposal (plan) and related support materials to ensure you receive the gatekeeper’s approval and acceptance as a result of due diligence for a binding offer.
  • Program 2A: Remaining $75k is held in escrow with NO ADDITIONAL EQUITY required for Program 2A to receive a binding term sheet.
  • Program 2B loans require additional $35k-$45k (different lenders than 2A) typically expect ~5-15% or more equity contribution from a source that is, by definition, not the same party as the senior lender. This is why we now offer Programs 3 and 4, “hybrids” of P1 CAP funding (project equity that never seeks a controlling interest) and P2 (senior debt), where
  • Program 3 is DIY (you “do it yourself”) for the Completion Assurance Guarantee (CAG), or
  • Program 4 is In3 arranging it “Done for You” (DFY) as a premium service.
    Service bundle “hybrid” of senior debt and project equity (more). 
    More on In3 “Done for You” services | Please use this checklist to see if your project fits.
• Program 5 — Discontinued
• Program 7B (10% + loan origination fees) — Loans for project, ventures or M&A: Although Program 7A’s cash or securities (20%) is greater than P7B’s cash (10%), 7B uses a down payment on the loan and the borrower still 10x the amount in funding at attractive rates of interest. Available in a lump sum or over a series of draws. If cash is used, the borrower effectively only repays 80-90% of the loan. If the 20% is securities-backed (Program 7A only), it sits and serves as a partial loan guarantee until the loan is repaid or refinanced. The exact requirements for qualifying 20% assets can be tested on a case-by-case basis without cost or obligation.
• Program 7A (20% + lower loan origination fees at a better APR than 7B)
• Program 6:  Enhance your creditworthiness when project funding proposals are “almost bankable” in order to obtain a bank’s loan.  Not widely used.

For Program 1 (CAP funding), the following assets can be pledged as collateral, used only until Commercial Operation Date (typically 1-3 years): 

Click on the image above to continue with the In3CAP proposal materials, which begins with a draft of the proposed guarantee using either the BG/SbLC template or AvPN templates, if preferred.

See also this comparison of the various Alternatives for 100% mid-market Project Funding