Using your operating budget to fund energy upgrades for your business or nonprofit
If you’re researching energy efficiency upgrades for your business or nonprofit, chances are your first question is “how are we going to pay for it?” As a nonprofit lender, education is a critical part of our mission, so we’ve launched this EE financing blog series covering the different ways to pay for an energy efficiency upgrade.
The second option for funding an energy efficient upgrade project is to use your organization’s budget, or “self-funding”.
Many times, the simplest way to pay for an energy efficiency project is to carve it out of the expense budget. There are a few considerations, however, before you decide to pay for energy efficiency projects out of the organization’s cash flow:
The first consideration is to know if there enough funds available to do all your energy improvement projects at once.
Addressing all your facility’s energy efficiency opportunities at the same time may lower the installation cost. For instance, efficient lighting, window tinting, and HVAC controls can actually lower the required tonnage of your HVAC system replacement. Instead, implementing all your improvements at once may cost less than budgeting these items over time because the cost of the HVAC replacement is less.
The cost of waiting when you do one project at a time can also be expensive. LED lighting upgrades have average simple paybacks of approximately 3 years. If your organization were to split a lighting project into several years to fit it into the budget, then the organization continues to pay unnecessary electricity costs on the parts of the project not yet installed. The electricity costs incurred will likely exceed the cost of financing (which at Pathway Lending is 2%).
A second consideration when deciding to pay directly for an energy efficiency project out of your budget is lost opportunity.
Companies retain cash and access lines of credit to support ongoing operations and seize growth opportunities when they arise. Costs related to energy efficiency expenses are not normal expenses of the business. Financing energy upgrades instead will allow your company to use working capital as it should be used – to support operations and growth.
Energy Efficiency investments are ideal investments to leverage with financing since the returns are predictable utility savings. Wouldn’t you borrow the national debt at 2% if you had an unlimited investment opportunity with a guaranteed return of 3%? Energy Efficiency is a great use of excess cash, but financing can be a great option when you have other opportunities to use that cash.
While your business, nonprofit, or governmental entity may have the cash to afford energy upgrades from your operating budget, be sure to consider the benefits of using a low-interest loan instead.
Check out our Energy Efficiency Resources page for more great information, including four steps to start an EE upgrade project. If you need help with your energy efficiency project or have a client who should consider a loan from Pathway Lending, let me know what I can do to help!
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