Using a commercial loan to fund energy upgrades for your business or nonprofit
When it comes to installing energy efficient or renewable energy upgrades in a business, nonprofit, or governmental entity, the first question is inevitably “how are we going to pay for it?” Education is a critical part of our mission here at Pathway Lending, so we’ve launched this EE financing blog series.
The first energy project funding solution we’ll outline is a commercial loan.
If your organization is located in Tennessee, you can take advantage of the Tennessee Energy Efficiency Loan Program offered by Pathway Lending. This program began with a vision to provide low-cost loans to businesses unable to attain them through traditional financial institutions.
There are two common reasons traditional financial institutions seldom finance energy efficiency projects. The first is they are unfamiliar with the technical aspects of these projects, and the second is collateral value is insufficient or completely unavailable.
In the instance traditional lenders are willing to finance energy projects; high interest rates are typical because energy projects are not secured with collateral. The high rates are justified as a balance of risk.
Pathway Lending, however, is able to offer below-market interest rates to encourage energy efficiency investments. Because these low-risk energy loans aren’t secured with collateral, Pathway Lending carefully evaluates the financial risk of the loan. Financials on the business and owner will be collected to determine the applicant’s ability to repay. The process can take several weeks before funds are available to start the project, but we work with you every step of the way.
As subsequent blog posts will show, a commercial loan is the cheapest mechanism to finance an energy efficiency or renewable energy project, but other criteria will influence whether an organization chooses to use a commercial loan to finance a project. For example, a commercial loan will be a liability on the borrower’s balance sheet. This will sometimes lead a business to choose a different financing mechanism, even when a commercial loan would cost less money. A commercial loan may also require a different level of approval than a lease or professional services contract. This is often true of local governments and large corporations, often steering them away from commercial loans for energy efficiency projects.
All in all, commercial loans are a great solution to finance energy efficiency projects. Be prepared to share financial and project information. Have your tax returns, financial statements, organizational documents, and project proposal in order to expedite the approval and closing process. The project savings might exceed the monthly payment of the loan, but the lender still needs to evaluate the financials of the organization.
Stay tuned for the next installment of our energy project financing blog post, and check out our Energy Efficiency Resources page for more great information.
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