Solar Financing

What Do Financiers Consider When Qualifying Commercial Solar Projects?

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Not sure if you qualify for financing for your solar project? In this article, we go over what financiers look at when a business applies for financing. Here are some important factors financiers consider when evaluating commercial solar projects.

Offtaker Credit

When evaluating financing, the first thing lenders consider is the offtaker’s credit. With terms often extending up to 15-25 years, lenders want assurance that the business will still be in good financial standing throughout the term

For large corporations and public entities that are considered investment grade, credit is known to be strong and financing is significantly easier to secure and on better terms. 

However, most small and medium-sized businesses and non-profits are not considered investment grade, making financing options more sparse and expensive, leaving these entities often underserved. 

Some of the factors that determine the credit of a business are the history of the business, current debt obligations, debt payment history, and the level and stability of profitability over time.

Debt Service Coverage Ratio (DSCR)

Another factor lenders take a look at is the Debt Service Coverage Ratio, or DSCR. The DSCR refers to how much cash flow is available to service the debt payments in the given quarter or year

A DSCR of 1 means that all available cash flow is being used to make debt payments, which severely stifles the business’s ability to grow. This is very risky for the lender. The lowest DSCR lenders typically consider is 1.2 and to be on the safe side, lenders often prefer a DSCR of 1.4 or greater.

Project Economics

Intuitively, it is very risky for lenders when the solar project results in the business losing money. The more savings from solar, the more the business will be able to repay the loan. There are many factors that dictate these savings such as the current utility rate, installation cost, system quality, available incentives, and net energy metering policies.

Type of Business

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The type of business impacts the risk profile of financing a solar project. Some industries are riskier and less stable than others. For instance, hospitality properties (hotels and motels) are considered riskier since leases are not involved and performance is highly correlated with the business cycle. 

In addition, financiers are often reluctant or unwilling to provide financing to gas stations because they face significant environmental risks relative to other types of businesses.

Financiers are also reluctant to lend to non-profits. Non-profits by their very nature may have less capacity to repay the financing and tend to have worse financial metrics such as the DSCR. 

Not only that, but lenders face greater headline risk or negative news coverage in the event that the non-profit defaults on the loan.

Take for example a secured loan on a local church where the property serves as collateral. If the church defaults and the lender moves to recover its losses by repossessing the property, there may be a backlash in the local community and negative press that may reduce the lender’s future revenue.

Luckily, BlueFlame is much more flexible than traditional finance companies. In fact, we offer financing to a wide range of commercial customers including hotels, gas stations, and non-profits. If you are interested in speaking with us about solar financing, please schedule a free appointment here.


SBA Loan Package Case Study

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We have recently worked with a hi-tech aviation parts maker in Cameron Park, CA to close an SBA Loan Package deal. In addition to financing their new rooftop solar PV system, we were able to refinance their mortgage as well. With a Stabilized LTV of 75.2% compared to an Initial LTV of 60.5%, the property owner was able to have more room financially to improve their business.

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What Can Solar Energy Give To Your Business?

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In the past, people have been a  bit hesitant when it comes to getting a solar system. Today, as more people are going solar, the many benefits of solar energy are increasingly understood. Here are just some of the benefits from solar power:

  • Lower utility bills - By generating electricity with solar panels, you purchase less electricity from the grid, which can result in tens of thousands of dollars- if not more- in savings during the 25+ year life of solar panels.

  • Little to no upfront cost required - Finance companies that specialize in solar finance, like BlueFlame Energy Finance, make it easy and affordable to install solar systems on their property with little or no upfront cost.

  • Increased property value - It’s not a secret that a solar system adds value to your property. Solar systems enhance the cash flow on a property by reducing energy costs, which in turn increases the value of the property.

  • Being able to sell extra energy generated back to the grid - in some states, Net Energy Metering (NEM) exists empowering you to sell extra energy back to the grid for additional revenue.

  • Less reliance on the grid - Being less reliant on the grid means that you are less affected by power outages. Since you are producing your own energy, this means that when power outages happen, you can relax and rely on the solar energy you produce.

  • Plenty of government incentives - The Solar Investment Tax Credit (ITC) offers 30% of the solar project cost as a tax credit. There is also the USDA REAP Guarantee Program, which guarantees loan for any agricultural businesses, or any businesses in USDA rural designated areas. Ask us if there are other incentives you can qualify for based on your location.

  • Better for the environment - With increased environmental awareness in recent years, going green is great PR that may even help bring recognition and differentiation to your business for its contribution to the environment.

BlueFlame Energy Finance has years of experience to confidently bring you financing terms that is sure to leave you satisfied! We don’t only inform you about the different programs you can qualify for to increase your savings but we also work with you to tailor the terms to your needs. This gives you room financially and less problems.

Schedule a free consultation with us today to see how we can help you!

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