Small business solar: Q&A on shorter term, project-backed $1M loans with Wunder Capital
Is there a certain system you have in mind for this product? And could this include solar+storage, or would storage throw the economics off?
Wunder Capital: Yeah, we’re looking for solar PV systems between 20 kW and 500 kW who need up to $1 million in project finance. The system has to be generating electricity for on-site usage and have a power offtaker that is a legal business entity. We most often see roof-mount systems, but carports and other ground-mounts on the property are okay too. A vast majority of the projects that we see are owner-occupied buildings, but that is not a strict requirement for us. We just want to see a pretty long lease in desirable real estate if there is a tenant occupant.
Finally, we do finance solar + storage projects, but the project economics have to support it. If there are significant demand charges in a customer’s territory, storage often dramatically lowers the payback period even with the increased cost-per-watt install costs. Regardless, we are definitely looking at project and borrower cash flows with a little bit more scrutiny in those storage projects.
Can you provide some examples of this program in action and just how it should theoretically save the customer money in the long run?
Wunder Capital: Sure, here’s an example: We’re working on a small project up in New Hampshire that really benefits from this model, especially the prepayment policy. It’s a retail customer who needs about a $64,000 loan to cover 100 percent of the cost of their 23 kW system. They’ll start out with monthly loan payments around $1,000, 40 percent of which will be covered by energy savings. New Hampshire has a 25 percent state tax credit for solar, so that with the federal ITC gives them about $35,000 in tax savings. Maybe after filing their taxes, they find that they have about half of that value to use for a prepayment. Their monthly payments will be lowered to $730, more than half of which is covered by monthly energy savings. By the middle of year 6, tax benefits and energy savings have paid back their system and capital costs and then by year 7, they are using free solar power and their system, business and property are lien-free.
Conversely, they could take out a second mortgage on their home and get the same loan amount at a 5 percent rate for a 20-year term. Their monthly payments would be a little over $400 and would be mostly covered by their energy savings from the system. Nice monthly cashflow scenario, right? Pretty easy sell for a solar consultant. However, over 20 years, the customer’s property will have a second lien on its record, making it harder to sell or to borrow more money. And the interest portion of all of those monthly payments will add up to more than $37,000, as opposed to $17,000 in the first scenario.
What did you learn from your other solar financing products that influenced this option?
Wunder Capital: We’ve learned a lot about what characteristics in a loan are useful to the solar industry. From a process perspective, we have learned how to split application activities between what we can do without the customer, and what we need them to be involved with. This allows us to give our EPC partners an early feel for a project’s eligibility without having to distract the customer too early in the sales cycle.
We’ve also incorporated a prepayment policy that allows customers to use rebates, tax credits and even their own operating capital to pay down their principal, whenever they want, without penalty. The payment triggers a re-amortization, which lowers a borrower’s monthly rate rather than just shortening their term, and provides a way for customers to lower monthly costs and pay less overall in interest and fees. This seems like kind of a no-brainer, but it’s actually pretty standard for lenders to disincentivize prepayments by charging significant fees and not reamortizing.
And then, not to distract from Term Financing, but our other product, the Bridge Loan, actually came directly from partner feedback. We were getting a lot of requests for equipment financing and milestone payments, but our Term investors were looking for a conservative risk profile and we had committed to loans that were backed by completed and generating solar assets. So, we broke out the construction risk and created a fund explicitly for development activities. Especially in the sub $1 million project size, we found that this was something that was really not being offered.
Comments are closed here.