Project Finance Conditions Precedent: A First-Draw Checklist

A project can have interested lenders, negotiated terms and signed documents while still lacking access to cash. For sponsors and developers, the practical task is to identify what must happen before the first draw, who must provide the evidence and who decides that each requirement is satisfied. A well-managed closing checklist makes that work visible.

What are conditions precedent in project finance?

Conditions precedent, often shortened to CPs, are requirements that must be fulfilled before a specified contractual step can occur. The World Bank’s PPP guidance connects financial close with signed project and financing agreements, satisfaction of the relevant conditions and the ability to begin drawing financing. It identifies project contracts, public approvals, permits and land arrangements among the possible requirements. That guidance concerns public-private partnerships; a private project must follow its own financing documents and applicable law.

Start by asking what each condition controls: signing, agreement effectiveness, the initial advance or a later draw. Do not use “approved,” “closed” and “funded” interchangeably in a project update. State the actual milestone reached and the remaining conditions. Your financing and legal teams should confirm the meaning of those milestones for the transaction.

Create an evidence tracker, not just a document list

Use one row for each requirement. Include the exact document reference, the action needed, the responsible person, the evidence to be delivered, the reviewer, the target date and any dependency. Add the current status and the location of the latest version. This is a suggested management tool, not a universal lender form.

For example: “Site access requirement — sponsor to provide the executed access agreement — counsel to review — needed before initial draw — awaiting counterparty signature.” This is more actionable than “land documents pending.” It identifies the missing action and the person who can resolve it.

Distinguish prepared, submitted, under review and accepted. Uploading a document does not establish acceptance. If a reviewer requests a change, record the specific issue and the next action rather than leaving the item marked complete. Keep earlier versions clearly separated from documents approved for signing.

Workstreams to discuss with your financing team

Ask the financing team to tailor these review areas to the agreed requirements. They are prompts for a closing discussion, not a statement that every project needs every item.

• Project company: ownership information, authorized signatories and required corporate approvals.

• Site and permissions: evidence of the rights and approvals needed for the planned activity at that stage.

• Commercial contracts: the status of construction, supply, operating and revenue arrangements relevant to the project.

• Funding plan: a reconciled sources-and-uses schedule, the agreed equity contribution and evidence of any other committed capital.

• Technical and financial review: the agreed budget, schedule, assumptions and resolution of material review questions.

• Closing mechanics: required security documentation, insurance evidence, account arrangements, fees and draw-request instructions.

For each workstream, identify whether another party controls the timing. A permit, land counterparty or supplier signature may be the critical dependency even when most documents are ready. The World Bank notes that PPP effectiveness and funding conditions can depend on one another. Raise such sequencing issues early so the parties can agree a workable closing process.

A first-draw timing example

Consider a hypothetical energy project seeking a $1.20 million initial draw for eligible equipment invoices. The sponsor expects to submit its draw request on Monday. The agreed facility requires three business days of notice, accepted supporting invoices and evidence of a required equity contribution. These are invented terms used only to illustrate scheduling; they are not CGFS terms or a market standard.

Suppose the invoices are ready on Monday but the equity evidence is not accepted until Thursday. The team should ask whether Monday’s request remains valid, whether the notice period begins only after a complete package is accepted and whether a new request is needed. It should not promise Thursday funding simply by counting three days from an incomplete submission.

Now assume a supplier deposit of $300,000 falls due before the advance is available, while the sponsor has only $220,000 available for that payment. The temporary cash gap is $80,000. Resolve the timing or funding source before committing to the payment date, and confirm how any sponsor payment will be treated under the facility. A loan commitment does not by itself solve a cash-timing mismatch.

Manage unresolved conditions explicitly

When an item cannot be completed by the target date, record the cause, the expected resolution date and the effect on the proposed draw. Ask which authorized party can decide whether an alternative form of evidence or a contractual change is acceptable. Do not treat silence, an informal conversation or an internal checklist update as a waiver.

Keep a separate issue log for decisions that affect more than one document. If a construction milestone changes, for example, ask whether the financial model, insurance period and payment calendar need corresponding updates. Reconcile the final assumptions across the package before circulating a revised closing date.

Questions to ask before announcing financial close

• Which conditions apply to agreement effectiveness, and which apply to the first draw?

• Who confirms satisfaction, and how will that confirmation be recorded?

• What is the last date for submitting a complete draw request?

• Which costs are eligible, and what evidence supports each payment?

• What amount will actually be available after agreed fees, reserves or other deductions?

• What requirements repeat at later draws, and who will manage them after closing?

Use the answers to produce a short closing-day plan: documents to be released, confirmations to be received, payments to be made and the owner of each step. Preserve the final evidence package so the project team can distinguish closing requirements from continuing obligations.

Frequently asked questions

Does a term sheet mean the first draw is available?

No. Read the actual terms and required next steps. A term sheet may be conditional and may contain both binding and nonbinding provisions; it should not be presented as cash already available.

Are conditions precedent the same as ongoing covenants?

They serve different functions. A condition precedes a specified step; a covenant is a contractual undertaking. Some requirements may also be tested again at later draws. Have the financing team identify the applicable timing for each obligation.

Can a sponsor complete the checklist without advisers?

A sponsor can coordinate the tracker and gather evidence. Questions about legal sufficiency, technical acceptance or authority to waive a condition should go to the responsible qualified adviser or decision-maker.

Prepare your project funding discussion with CGFS

Creative Global Funding Services reviews qualified funding requests of USD $1 million or more and connects sponsors, businesses and project owners with potential capital providers. Bring a project summary, requested amount, budget, committed-capital information and a clear account of outstanding milestones. Funding is subject to independent review, due diligence, acceptable terms, documentation and final approval.

Related guide: https://www.creativeglobalfundingservices.com/how-project-financing-works-us-developers/

Contact CGFS: https://www.creativeglobalfundingservices.com/contact.php

This is general funding education. The relevant agreements and jurisdiction determine the requirements for a specific transaction.

Source and further reading

World Bank PPP Resource Center, Achieving Contract Effectiveness and Financial Close: https://ppp.worldbank.org/achieving-contract-effectiveness-and-financial-close