So, your business has decided to transition to solar, but you are unsure of your next steps. Solar project financing sounds confusing at first, but once you understand all your options, you will be able to make the optimal decision to receive the best ROI.
AVANA Capital has created numerous solar strategies for energy consumers, developers, and businesses and is here to help you decide which structured plan is right for you. This solar project guide will provide you with information about the different financing options in a way that is easy for you to comprehend.
When it comes to solar project financing, there are two main factors that make financing attractive to companies. One is that our low-interest rate economy delivers reliable and compelling returns. The other is that there are many tax incentives that allow your company to achieve significant tax savings.
You can enjoy strong returns and savings with the following solar financing options:
If you are looking for up to 80% of your solar asset to be financed, then a bank loan may be the right option for you. This simple, financing loan is perfect for companies that have good credit and that pay substantial taxes but do not have enough cash to pay for the project upfront.
Also, if you are interested in retaining capital for reinvestment or you want to spread out your project payments over time, contacting your bank may be the right move. The downside to using a bank is sometimes they may not know all of the intricacies on how to underwrite for solar. If your bank is unable to do this, AVANA Capital can help.
According to the Solar Energy Industries Association, a solar PPA is a financial agreement where a developer arranges for the design, permitting, financing, and installation of a solar energy system on a customer’s property at little to no cost.
These agreements typically range from 10 to 25 years and the developer is responsible for the operation and maintenance of the solar system for however long the agreement is in place. Once the agreement terminates the customer may extend the PPA, remove the system, or buy the system from the developer. As a customer, you can expect no or low upfront costs, limited risk, higher property value, and reduced energy costs.
This type of lease has the lessor owning the solar system while the lessee makes a monthly payment. The lessee reaps all the benefits of the Solar Renewable Energy Certificates incentives and electricity savings for the term of the lease and the lessor get all of the tax benefits, which includes depreciation. Once the lease term ends, the lessee can return the solar system to the bank, they can choose to purchase the solar system, or they can renew the lease upon approval. One of the best features about operating leases is that the payments are lower than a capital lease.
Property Assessed Clean Energy is another option for your business to borrow money for clean energy projects. Business owners are able to receive financing for upgrades and repay through property taxes. If you are wondering how to get approved for a PACE loan you’ll be happy to know it’s fairly simple. Approval is based on the equity in the property being upgrades, which will also be used as collateral to secure your loan. Typically, you can borrow up to 15 percent of your property’s value. Note, PACE is only available in areas where state and local laws allow this form of financing.
A capital lease allows your business to be able to capitalize on all the tax and depreciation benefits that come with a solar system. Your business will still be able to buy the system from the bank at the end of the lease or remove it. What sets a capital lease apart for an operating lease is that a capital lease’s monthly payments are typically higher. Additionally, the solar system is classified as a long-term asset as well as a long-term liability, which may impact your tax situation.
Now that you are aware of all the options available to you when you want solar project financing, it is up to you to decide which is best for your business. Solar financing companies like AVANA Capital can help make the decision process a little easier by assessing your current situation and recommending what they think will give you the best ROI.