LED and Solar technologies and interest in those markets is booming. The cost savings are tangible and the stability of much of the hardware has reached a level where its longevity can be relied on. Makeshift, flimsy equipment has, for the most part, disappeared and been replaced with extended warranties and well-engineered products. Companies and manufacturers can save thousands of dollars by implementing the new energy-saving systems but it takes capital to make those projects happen.
How much capital? Upgrades can range from a hundred thousand dollars to several million and, as we have experienced with our volatile economy, using cash reserves to fund them can be scary. It is well-known that business lending has been constricted but not in all the available channels; many wholesale lenders and private investor groups are funding energy projects throughout the U.S.
So what do you need to do or have to get your new LED or solar program funded?
1) Your financial paperwork in order; three years taxes, financial statements and interim statements all in electronic format. Before applying for funding have everything organized and if something is missing, wait until you have it because it will sit in underwriting until it is complete. Make sure all liens or outstanding judgments are resolved.
2) An Energy Audit Report. Your vendor should provide you with a detailed analysis regarding the cost savings of implementing their product. Typically, the costs savings will add to your bottom line and be used to substantiate taking on new debt. If it takes ten years to break even then that may push you out beyond the term lenders are able to offer.
3) Vendor Profile. Have some background information on your vendor; how long they have been established, what other projects they’ve done so you can validate their stability to the lender. Start-up vendors in this market will not likely be approved so choose who you work with carefully; their background and experience will be important to the underwriters.
4) Evaluate your Net Worth. Sit down with your CFO or accountant and assess your company’s net worth. If it is not two to three times more than the cost of your project then you may need additional assets to be used as collateral to support the debt. At this point, you may consider trimming down the project size or doing it in several phases.
Financing Green Tech projects requires a little more attention to detail and a stronger credit than standard equipment. You don’t have to be strong in all the areas we reviewed but a weakness in one means you will have to have additional strengths in other key areas. The equipment itself will not serve as collateral and knowing that going in will help bring your expectations within reason. Commercial lenders, for the most part, are staying away from financing Green Tech but private investors are out there funding them every day but you have to be prepared to know what it takes to get approved.