When you’re working on a renewable energy project, chances are you’ll need funding to bring it to the finish line. Good news: the Small Business Administration (SBA) can approve multiple SBA 504 loans to support your green initiatives! Whether you need business financing to improve your building’s energy consumption, build a renewable energy source, or construct “green” buildings, this initiative can give you the support you need.
Already have an SBA loan? Don’t worry! You can qualify even if you have an existing SBA 504 loan or other SBA funding. For example, if you have an existing SBA 504 loan for buying your commercial property and are looking to improve its energy efficiency, your renewable energy project may be eligible for additional SBA 504 funding. Here’s everything you need to know about this SBA initiative.
With a standard SBA 504 loan deal, there’s a financing cap of $5.5 million for the SBA 504 portion of the loan. However, your project could be eligible for additional SBA 504 loans if you meet the SBA’s qualification criteria.
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Through this initiative, you can get up to $5.5 million in financing for each aspect of your renewable energy projects and energy-efficiency improvements, up to a maximum of $16.5 million! This amount is above and beyond any SBA 504 or other SBA financing you ‘ve already received.
1. The project must result in a reduction of energy consumption by at least 10%. This can’t be used for projects involving new businesses because you need to show improvement over the historical energy consumption for your business.
For an existing building, the updates must reduce the energy consumption by at least 10%. This is specifically for the building that’s being funded and doesn’t apply to the energy usage of any other facilities that your business uses.
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2. The renewable energy project generates more than 15% of the energy used at the facility. The SBA 504 funding must be used for this building with the following details:
3. Your business is using sustainable building design for its facility. You may also qualify if your business is looking to use sustainable designs for its building. However, these improvements must help reduce the use of greenhouse-gas-emitting fossil fuels or follow low-impact development principles.
Finally, an energy audit must show that your project meets one of the three criteria explained above. This means you’ll need to document your compliance for the program through an energy audit, an engineering report, or any other evaluation approved by the SBA. This audit will document the annual energy usage at the facility or facilities.
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An important thing to know about this project financing is that SBA 504 loans offer some of the most beneficial terms you’ll find anywhere. On top of that, this program makes it possible to get funding beyond the typical SBA 504 maximum financing cap! This means that if you’ve been considering making energy-efficient improvements or adding renewable energy projects to your commercial property, you should explore this option.
Every day, Pursuit helps small business owners like you find the best funding solutions to meet their needs. Our experienced team will work with you to help determine eligibility and leverage opportunities, including this one. Get in touch today and learn more about how we can help you achieve your renewable energy project goals for your business.
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The good news is that it is relatively easy to obtain a solar loan that allows you to purchase a solar panel system with little or no upfront costs.
A solar loan is a loan taken out for the purchase and installation of solar panels. They offer a way for homeowners to invest in a solar panel system without paying lots of money upfront.
Solar loans are generally considered a subcategory of home improvement loans. As such, they are available with many different payment structures, terms, and rates.
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Homeowners are attracted to solar loans because the purchase of solar panels results in immediate utility bill savings. The bill savings can then be used towards the monthly loan repayment.
Yes, if you take out a solar loan to install a solar panel system, you still qualify for the solar tax credit.
The solar tax credit, also known as the Clean Energy Tax Credit, is a federal incentive that allows you to claim back 30% of your total solar panel installation costs when you file your taxes.
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Many solar loans are designed to take the solar tax credit into account. Solar loans offered by Mosaic, for instance, allow you to reamortize (pay down) your loan when you receive the tax credit, thus reducing subsequent monthly loan payments.
Here are the most important loan features to look at when you are comparing solar loans — and what each one means:
Secured loans are backed by an asset, typically your home. As such they tend to have lower rates, with the APR usually falling between 3-8%. Home equity loans and HELOCs (Home Equity Lines of Credit) are the most common versions of these.
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Residential PACE (R-PACE) loans are another example; they are secured through a lien on your property tax. PACE loans are offered to people with lower credit scores, but they typically charge a higher rate than a home equity loan or HELOC.
Unsecured loans, as the name suggests, are offered without an asset offered as collateral. These generally require a good credit score, and the better your credit score, the lower your rate. The APR on an unsecured solar loan can vary from 5.5% to 20%, or even higher.
Secured loans such as home equity loans and HELOC usually have APRs between 3-8.5%, depending on your credit score. The rates on PACE loans tend to be at the higher end of this spectrum, with APRs between 6.5 and 8.5%
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The rate range on unsecured loans is much higher. In general, the rates vary from APRs of 6% to 30% or higher. Getting a rate at the lower end usually requires an excellent credit score.
You can find solar loans ranging with maturity periods as short as 3 years to as long as 30 years. However, loan durations of 10-20 years are most common.
The length of the loan and the loan rate are inversely related. That means that the higher the loan length, the lower the loan rate.
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One important reason is that when you buy a solar panel system — whether through a solar loan or otherwise, you instantly increase the value of your home. A study by Zillow found solar panels on average add 4.1% to property’s value. For a $500, 000 home, solar panels will add a cool $21, 500 in value.
As for the total savings and cash flow from a solar loan, this depends on how you choose to set your loan up. Let’s look at two different cases where a homeowner comes out ahead by taking out a solar loan:
In many cases, the homeowner will come out ahead from Month One. For instance, check out the diagram below generated by our solar panel calculator. It shows a utility bill customer who pays $199/month for electricity.
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After purchasing solar panels with a 20-year zero-down solar loan, their utility bill will be just $19, while their loan repayment will be $132 - they’re coming out a net $48 ahead.
In the example above, the homeowner is essentially getting an asset that generates positive returns from Day One, all without spending anything out of pocket. For a homeowner looking for an instant return on investment, installing solar panels in this situation is a no-brainer!
Some homeowners may choose to prioritize overall savings over the lifetime of the panels. For example, the savings from a solar loan can be as high as $100, 000 in solar-friendly states like California and New York.
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In order to achieve higher returns like these, you should seek a solar loan with the shortest possible contract term, say 5 or 8 years. This will result in higher monthly loan repayments that are equal to, or even higher than, your monthly electric bill.
While you will not see positive cash flow during the duration of the loan, once the loan is paid off, you will enjoy essentially free electricity from your solar panels. And since solar panels are warrantied for 25 years — but often last longer — with a 5-year loan, you’ll enjoy over twodecades of free
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