Solar equipment financing for businesses

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    Chris Godfrey

    Page written by Chris Godfrey. Last reviewed on July 19, 2024. Next review due October 1, 2025.

    Businesses that install solar equipment to provide their energy needs can benefit from cheap, green energy and major tax benefits as well as doing good for the environment. However, commercial solar energy systems are not cheap, typically costing more than $250,000 to buy and install. For this reason, many businesses choose to finance their solar investment – reducing strain on working capital by paying for the equipment over time instead of all at once. 

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      What is solar equipment financing?

      Solar equipment financing refers to specialist business loans and leases that help organizations buy or rent the commercial solar equipment they need. This type of financing is more readily provided by online lenders than traditional banks and credit unions and it can be used to buy or rent new or used commercial solar panel systems.

      What’s the difference between commercial and residential solar panels?

      Although commercial and residential solar panels both generate electricity using energy from the sun, there are key differences in these systems:

      • Solar panels are made up of photovoltaic (PV) cells, which capture sunlight to generate electricity. Commercial solar panels have more PV cells than residential solar panels because they need to produce power for an entire commercial operation rather than a single household. To accommodate the additional PV cells, commercial solar panels are physically larger and heavier than residential panels. 

      • Commercial solar energy systems are more complex because they are much larger and will often involve equipment with high electrical ratings.

      • Commercial solar installations typically take longer than residential installs. Business solar systems are not only bigger and come with increased technical complexities, they are subject to more regulations, which means the approval process can be slow.

      Why should I finance or lease my commercial solar equipment?

      Firstly, financing or leasing may be a more tax efficient way to obtain the solar equipment you need. Secondly, because you’ll only need to make a down payment on the equipment, instead of covering the whole cost upfront, you may be able to buy or lease a better, bigger and more expensive commercial solar panel array than you could afford with cash.

      How does solar financing for businesses work?

      Solar financing can cover the costs of the solar equipment and its installation. It may also cover maintenance and repairs. If you choose to finance your solar panel system, there are three ways to go:

      • Buy the solar equipment with a business loan.
      • Rent the solar equipment with a lease.
      • Enter into an agreement with a third party supplier who installs and retains ownership of the solar panels and then sells you the low-cost energy that the system produces. 

      Let’s look at these options in more detail:

      Buy commercial solar panels with a business loan

      All business loans for the purchase of commercial solar equipment work with the same basic format: You borrow a sum of cash and then repay it over time. Interest charges and fees are added to the principal amount you borrow. The lender may retain a lien on the equipment during the term of the loan. By contract end you’ve paid the loan off and you own the equipment outright.

      Types of business loan to buy commercial solar panels

      • Equipment financing
        The most common way to buy commercial solar equipment, equipment loans are ‘self-collateralizing’ – like auto loans – you use the equipment as you pay for it, while the lender maintains a lien on the machinery. Once you pay the loan back, the lender releases the lien, and you own the equipment outright. No added collateral is required.
      • Business term loan
        The standard type of business loan. You receive a single, lump-sum cash injection and then pay it back in regular instalments, plus interest and any fees, over a fixed period of up to 25 years. Collateral may be required.
      • Business line of credit
        This is a business loan that functions like a high-value credit card but comes with lower interest rates and fees. Withdraw as much as you want when you want from a loan facility up to the limit of your borrowing. You only pay interest on the sums you withdraw, not the whole line. This can significantly reduce your borrowing costs. Collateral may be required.
      • Invoice financing
        Also known as account receivables financing, this type of loan allows you to borrow against the value of your unpaid invoices and is best for B2B organizations. The lender will usually provide up to 95% of the invoice value within a few days or even hours of the bill being raised.  Your invoices act as security for the loan, no added collateral is required.

      Advantages of business loans to buy commercial solar equipment:

      • Regular repayments can improve your financial planning.
      • You own the equipment at contract end.
      • Could allow you to buy better and a more expensive solar equipment than buying with cash.
      • May be more tax efficient that paying with cash.

      Disadvantages of business loans to buy commercial solar equipment:

      • Some loans may require added collateral or a personal guarantee.
      • Interest rates on some business loans can be high
      • At contract end the equipment may still need replacing or upgrading

      Lease commercial solar panels with a finance or operating lease:

      Leasing works differently from business loans. With a lease, you’re not buying the solar equipment, you’re taking out a long-term rental. Depending on the type of lease you choose, you may have the option to buy the equipment at contract end for a pre-agreed sum,.

      Because you are not repaying the whole cost of the solar equipment, leasing usually requires lower monthly payments than business loans. You may also pay a smaller down payment – perhaps equal to one or two month’s repayment instalments.

      If you choose not to buy the equipment at the end of the lease, the solar panels go back to the lender. You would then need to take out a new lease and obtain replacement equipment. 

      Some lessors (lenders) may give you the option to extend the lease if you prefer to keep the equipment but do not wish to pay the residual. 

      Leasing options for commercial solar equipment

      • Finance lease
        A finance lease gives the lessee (you) the option to buy the solar equipment at contract end. You provide a down payment and then pay a monthly rental fee to use the equipment during the contract period. At the end of the lease, you can either pay an agreed sum and keep the solar panels, extend the lease and continue to rent, or give the equipment back to the lessor. A finance lease may or may not include maintenance and servicing of the equipment. You will usually be responsible for the equipment insurance.
      •  Operating lease
        An operating lease is a simple long-term rental agreement. There is no option to buy the solar panels at contract end. You provide a down payment and then pay a monthly rental fee to use the equipment. When the lease expires, the solar panels return to the lessor. The lessor provides equipment maintenance and servicing, but you will usually be responsible for insurance. An operating lease often comes with lower monthly payments than a finance lease.

      Advantages of leasing commercial solar equipment:

      • Pay a lower monthly sum.
      • May pay a lower down payment.
      • Could allow you to obtain better and more expensive solar equipment than a business loan.
      • No added collateral required.
      • May have the option to buy the equipment at contract end.

      Disadvantages of leasing commercial solar equipment:

      • May not own the equipment at contract end.
      • There may be restrictions on the types of equipment you can lease.

      Get the cost-savings of solar energy with a Power Purchasing Agreement

      A Power Purchasing Agreement (PPA) is an agreement between your business and a third party who pays for, maintains and owns the system they install at your business premises. This option can give you easy access to solar energy, but you’ll have no possibility of ever owning the system, nor will you gain any tax advantages. Instead, just like buying electricity from your local utility supplier, you pay the solar system owner an agreed-upon price for the electricity their equipment generates.

      PPAs can last from 10 to 25 years, giving you long-term access to renewable energy and a reduced electric bill. 

      Advantages of a PPA:

      • No upfront investment.
      • No maintenance.
      • Access to clean energy.
      • Often less expensive than utility electricity.

      Disadvantages of a PPA:

      • You don’t own the solar panels.
      • You don’t benefit from the tax savings.
      • You still have to pay for electricity.
      • A third party owns an asset on your business property.
      • You’re contractually obligated to purchase the electricity for a number of years

      Can I get solar financing with bad credit?

      Probably. Even if your credit score is weak and/or you’ve been turned down elsewhere, it may still be possible to get the solar equipment financing you need. To find out if you qualify before you apply, contact Swoop to discuss your funding needs with a finance expert. 

      Get started with Swoop

      No matter if you’re seeking your first equipment loan or you’re a seasoned borrower, working with business finance experts can make all the difference when applying for funding. Contact Swoop to discuss your borrowing needs, get help with your application and to compare high-quality equipment financing deals from a choice of lenders. Give your manufacturing business the equipment it deserves. Register with Swoop today.

      Written by

      Chris Godfrey

      Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.

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      At Swoop we want to make it easy for SMEs to understand the sometimes overwhelming world of business finance and insurance. Our goal is simple – to distill complex topics, unravel jargon, offer transparent and impartial information, and empower businesses to make smart financial decisions with confidence.

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