In3CAP funding is currently without any initial costs because we engineered an innovative structure that enables us to greatly increase certainty and avoid most or all of the wheel-spinning that is typical in project finance. Related topic: How CAP solves notorious problems with mid-market project finance
Some points to reflect on this:
- Those who believe the idea of paying anything ahead of closing is ridiculous will want to stick with In3 CAP. We’ve found that this belief is usually based on one or both of the following:
Belief 1: The business plan, financial pro-forma and executive summary should require no vetting or validation. It is valid, clear, properly prepared (per established accounting standards) and a lot of time and energy went into it. What’s not to like?
Belief 2: Failure to understand that some cash liquidity, or an equity partner with “unexpended funds,” will be necessary to satisfy conditions for a senior loan.
- In3’s alternative lenders need to pinpoint the risk/reward equation: Although CAP funding is without initial costs, In3’s vetting fee expectations exist is so that the funder is not asked to take on 100% of the risks. Another party — either the project developer/owner or any equity partner — must take on a meaningful share of the risks that this could go nowhere, through no fault of ours or the ultimate source of funding we would introduce. The amount of time needed just to determine if the funding request actually makes sense presents quite a challenge. The saying “Trust in God but all else must bring proof” applies here, even if you are atheist. Technically, the risk/reward equation must add up for the investor/lender, because if it doesn’t, they either will decline to provide the funds, suggest an additional equity partner, or ask for higher-than-necessary (called “risk adjusted”) returns for providing fundings.
- Diligent planning is not enough: For project developers/owners who have experienced success, that is, completed successful funding requests, they can “step into the shoes” of the lender to appreciate their need to honor due diligence and underwriting requirements. More experienced developers put keen attention to preparing and planning for lender due diligence and show up with a detailed checklist of what’s already placed into a dataroom, as well as announcing their adherence to established accounting standards, with full transparency about (the tough part) remaining risks or any gaps or missing proof points that require a leap of faith.
- When financial projections (based on transparent assumptions) require substantiation, and other proof points are required, a vetting and due diligence request is good news – it means the utmost care and attention will be given to critical success factors that could otherwise scuttle the loan at the last minute. This becomes the developer’s own peace of mind … a time when predicting the outcome is exactly what is wanted. No surprises except perhaps the occasional “bonus” of a lower APR or concession on the target carried interest or fees.
- Persuasive evidence that borders on proof that the proposal is on target also means that, once submitted to the lender with a positive initial response, that lender believes the project is worthwhile and would make good loan/investment sense. If all goes well during our initial vetting (aided by making any necessary improvements or changes and/or the results of In3’s vetting in report form), then the lender’s fee is requested and their due diligence begins. The DD fee costs range widely, from $75,000 up to a deposit of 15-20% of the total funds required, or an asset pledge (we can cover the bank-involved guarantee issuance fee of 0.25% – 3%) of at least 30% but ideally closer to 75% of the funding amount. This asset pledge often comes from a third party “sponsoring” guarantor.
- Most lenders will work closely with borrowers to establish release of funds, fee tranches, etc. Not surprisingly, closing the deal will bring both the borrower and the lender/investor together prior to release of funds, or getting under contract, and then again to cooperate if necessary to accomplish a successful project. You should know that many lenders and investors, including CAP and Programs 2-7, allow all fees to be capitalized (added to) any closing costs they will cover, including any upfront fees. Just another benefit of working with a first-class lending source that upholds the highest ethical standards, operates transparently, in good faith, and remain top notch professionals because our reputation, we realize, is everything in this business.
If you have additional questions, see our complete set of FAQs
For further specifics on In3 programs and their relative costs, see In3 Fund Programs and the cost of capital