Time to read: 4 minutes
Welcome back to our series on commercial finance!
In the second installment of this series, IES energy solutions manager Justin Charles continues to tell us about commercial financing options for solar and guides us through what your company should be considering in terms of financing options. In this article, Justin focuses on another strong financing option: Bank Loans.
New to this series? If you are, then we recommend starting with our first installment on Cash Purchases to get an in depth look at tax incentives and depreciation incentives.
Justin has 12 years of experience in the alternative energy space, specifically the solar industry, and runs the solar division of IES where he focuses on building commercial opportunities, particularly in regard to creative design, engineering, and helping customers with finance solutions that allow them to afford the projects they want.
While IES’ primary opportunity is solar, they also offer generator solutions, backup batteries, and LED lighting. IES views energy solutions as a holistic opportunity and their goal is to help reduce energy consumption and to find ways to make it all an affordable solution for their customers.
Going forward, it is important to recall that solar is usually thought of as being unaffordable for many residential and commercial consumers. As JC had pointed out in the previous article, there are non-refundable tax credits that are 26% of the system price and depreciation incentives, which are the MACRS five-year depreciation schedule. Residential and commercial consumers also have the ability to bonus depreciate up to 100% in the first year.
As JC had pointed out in the Cash Purchase article, there will be a decreased cost of capital for the consumer and a slightly diminished ROI for them as well. These options make it easier in terms of ability to afford and get in the door. This is due to the shift of responsibility and cost scenarios from the consumer to someone else. With that said, the advantages that come with a Bank Loan are sensational.
Why choose a Bank loan and what are the benefits in doing so?
“One of the best options is to go for a traditional bank loan. Talk to your bank and just get a seven or 10 year loan. You’re going to get the lowest interest and the best opportunity from your own financial institution. But those opportunities require that you have collateral, that you’re going to leverage that collateral, and that you are in a lendable market space. If your business is already leveraged, if you’ve already taken loans on your assets, your accounts receivable, your building, your inventory, etc… you’re not going to have a good opportunity to get that loan, but it is going to give you the best opportunity for the highest return on investment.”
“It is typically one of the easiest from a paperwork standpoint. You’re leveraging an existing relationship with your lender and your financial institution, and it’s going to be straightforward from a return on investment standpoint. You’ve got a small amount of interest typically, in our business sector we’re talking between 3.5% and 7% right now, so the total loss from an interest standpoint against the total positive gain is pretty minimal. If you don’t have those resources though, or you’re already leveraged, the next two options are ones to look at. There are other reasons to look at these options as well.”
In the next article in our commercial finance series, we will be exploringa unique financing option: Capital Leases.
Solar is a phenomenal and stable financial investment for almost any and all types of businesses and the best way to figure out if it’s right for your business is to talk to a consultant. Start by getting them at least one, but preferably 12 months, of your energy bills to see what kind of opportunity there is for you in savings. We can then look to see if there is a perfect financial vehicle for you. If purchasing it outright with cash isn’t the right option, there are several ways to do it with no money out-of-pocket. Don’t make cost a barrier to entry for you. Doing a lease can start for system purchases as low as $50,000.
If you are considering switching to solar for your home or business, reach out to us by going to our website, iestxsolar.com, or by giving us a call at (855) 447-6527.
