Project Financing/Bridge Financing
Our Project Financing/Bridge Financing Program provides up to 100% financing for projects requiring loans of 1-3 years. We are unique in that we provide financing backed by a financial guarantee such as a standby letter of credit (SBLC) or bank guarantee (BG). In many cases, clients who provide an SBLC to their bank rather than physical assets, such as real estate, are able to receive faster loan approval while qualifying for a larger loan amount.
Our minimum loan amount is $5 million, with a maximum of $100 million. We will consider commercially viable projects in virtually any geographic area including North and South America, Caribbean, Western/Eastern Europe, Australia/New Zealand, Southeast Asian (ASEAN) countries, China, India, Africa and the Middle East. The loan proceeds can be used for equity, investor buy-outs, down payments, refinancing, etc.
How the Program Works
The process begins by the client securing a funding commitment from their bank. Our program is best suited for clients whose funding needs are less than the loan amount for which they qualify. Oftentimes, banks will approve an increased loan amount if the loan is to be secured by an SBLC rather than project assets. If the client were to default, the bank would simply draw on the SBLC and the loan would be repaid within seven banking days. We have thus replaced the client’s risk assets with our own.
To mitigate our risk, we require the client to provide us with a 50% loan loss reserve (LLR) at closing. However, the client would only be responsible for repaying 50% of the loan at maturity—we would be responsible for the remaining 50% from the LLR. We also typically require a 10%-20% equity interest in the project, which would double in the event of client default. It is important to emphasize that throughout the loan period our SBLC is the only asset at risk, not the client’s loan or the client’s capital.
Let’s say that a client has a $10 million alternative energy project and has obtained a $20 million funding commitment, if secured by an SBLC. Assuming the bank is willing to loan 90% LTV against the SBLC, we would issue a $22.5 million SBLC, and the bank would provide a $20 million loan that would be disbursed as follows:
- $10 million to the client (thus providing 100% financing);
- $10 million to Gideon to be held as the loan loss reserve;
- Gideon would receive a 10% – 20% equity interest in the project;
- At maturity, the client would repay $10 million; Gideon would repay the remaining $10 million;
- If the client were to default, the SBLC would be called by the lender for repayment and Gideon’s equity interest would increase to 20% – 40%;
- At no point are the client’s funds at risk—only our SBLC—hence the equity requirement.
- Gideon and Borrower sign loan documents.
- Borrower obtains financial guarantee–Standby Letter of Credit (SBLC) or Bank Guarantee (BG)–as collateral, from their bank or Investment Partner*.
- Borrower’s bank issues SBLC/BG to Gideon’s bank as Beneficiary. Under certain circumstances the SBLC/BG might need to be advised/confirmed by an intermediary bank.
- We draw down on our liquidity with our bank based upon: i) viability of the Borrower’s project or company; ii) size and strength of the bank issuing the SBLC/BG; iii) the financing agreement between Gideon and Borrower.
- We disburse the loan to Borrower after deducting: i) interest reserve; ii) issuing costs; iii) fees.
- Upon maturity, typically one year, Borrower repays the loan, or requests a one-year loan extension, which would require paying bank interest and fees for an additional year.
- Upon loan repayment we restore our liquidity with the bank and the SBLC/BG is released.
- If Borrower fails to repay the loan, we instruct our bank to call upon the instrument.
- Borrower’s bank will pay the claim upon the SBLC/BG and foreclose Borrower’s collateral used to secure the instrument.
*The Investment Partner: A third-party–such as a supplier, EPC Contractor or financial investor–can issue the SBLC/BG on behalf of the Borrower, which would likely require providing the Investment Partner with an equity stake in the project. The advantage to the Investment Partner is that they are providing a financial guarantee, rather than a direct cash investment.