Mid-Market Project Finance Success & What to Avoid in 2023

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. Financial terms are important, of course, but not the entire story. The funder’s reliability, consistency, speed, and expectations are arguably more important, because no matter what the terms (loan interest rates do vary quite a bit) if you get caught up in a scam, or unreasonable due diligence requirements, the loan will not materialize, whatever the rate of interest!

To qualify for our Completion Assurance (formerly “Capital Guarantee”) Program (CAP funding), for example, developers and their promoters need only pick a legitimate “real” bank. Although the larger the better for us, we do not require that guarantees come from top, global “Tier 1” banks. We often have solutions available even if a smaller, regional / community, low-rated or even unrated bank is preferred, which may be to your advantage, as they tend to be more affordable.  

What to avoid

Here’s a compilation of known “black listed” banks that should be noted and used as reference to make sure you are not getting caught in their fraudulent web: blacklistbanks.weebly.com

Or if in the state of Florida, USA, see this 2022 fraud alert.

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.

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 black listed 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 are 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 leased instrument 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.

Another key to legitimacy is how they do business, which includes asking to be paid only when the real instrument (hardcopy received by the funder’s bank, just before closing) has been received and confirmed. SWIFT can help with this key step, where MT760 does the work of blocking an asset followed by delivery of hardcopy. Legitimate providers are willing to be paid 14-21 days after said delivery, which we can arrange by special request — ordinarily, first draw of project funding is 30-45 days.

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), available in 2023 for qualified projects (more).

There’s also a LinkedIn group for practitioners and developers at Scam Alert – Project Funding | Groups

Contact us with any questions or to determine of your situation qualifies.

Daniel Robin
In3 Founder & Managing Partner