Everything You Need To Know About Solar Financing For Businesses?

Overview:

A solar energy system may be a very significant asset for both small and large enterprises. Solar power may not only substantially cut your electricity costs, but it can also lower your outstanding taxes and increase the value of your property. However, despite all of the benefits of solar energy, there is one major roadblock: the initial installation cost.

Solar system components are now easy to manage and less expensive due to technological advances like solar pv system design software, and attractive government subsidies sweeten the bargain even more. However, it is still true that solar energy demands a considerable initial investment. That investment may pay for itself in a few years, but unless you have enough cash on hand, you'll still need to find the funds to install the system. However, you should not have to forego the thousands of dollars that a solar energy system may save your company because of short-term financial issues.

Best Way To Finance Solar Panels:

Purchasing Your System Outright with Cash:

For most organizations, purchasing the solar system altogether with cash is the best option. This places you as the system owner, allowing you to reap the full range of solar benefits, from energy savings to tax breaks. Buying your system with cash may be less difficult than you think. While a solar panel system does need a significant investment, current incentives reduce installation costs significantly, making acquiring the funds required to install the system easier.

First and foremost, all firms that pay taxes will be eligible for the federal government's 26 percent Solar Investment Tax Credit (ITC). This permits firms to deduct 26 percent of the cost of their system in the year it is implemented. There is no limit to how much money you may save using the ITC. If the 26 percent savings is more than your tax burden for the year your system is built, you can carry those savings forward for up to 20 years until you've recovered the whole 26 percent.

Furthermore, companies can deduct 100% of the cost base of the solar system in the first year. This 100 percent bonus depreciation allows you to expedite all federal tax advantages to help cover installation expenses right now. Other incentives may be offered to your firm based on your state, town, and even your utility company.

Overall, some organizations can save installation expenses by more than half. Let's look at one example quickly. A 50 kW system would cover a monthly power bill of around $600. That system would cost around $124,100 before incentives. That cost is reduced to $60,448 with the 26 percent ITC and accelerated depreciation. That's simply with federal tax breaks accessible to all firms. Your company may be eligible for extra grants and credits to further reduce costs.

Purchasing a Solar System with a Solar Loan:

Many people might not have the cash on hand to buy a vehicle or a house, but with strong credit, they can still make these purchases safely. Similarly, you do not need to have the cash on hand for your system in order to gain the full benefits of solar system ownership. Several financial banks provide commercial solar financing schemes.

Lending banks understand the strength and dependability of a solar power investment. Sure, the system may cost $60,000 to install, but the firm will save $600 per month on power for the system's full life, which might be 25, 30, or more years.

Not to mention the soaring cost of power. That is not only a terrific long-term investment, but it is also a steady one. As long as you deal with a reputable solar contractor who utilizes durable parts, your investment will pay off month after month, as long as the sun shines! Local lenders, on average, provide the best rates and the shortest turnarounds. They may be people with whom you are familiar, which can make the procedure go more smoothly.

A capital lease might also be a possibility for you. However, these are not the same as what others refer to as a "solar lease." A capital lease, as opposed to a car, building, or land lease, permits you to physically own the solar system after it is paid off. Capital leases often have shorter periods than traditional loans, and you'll still be able to take full advantage of the solar system's tax benefits.

Solar Leases & Power Purchase Agreements (PPAs):

There is an alternative if you don't have the funds or access to a loan but still want to go solar. A power purchase agreement (PPA), also known as a solar lease, installs solar on your roof or property and provides you with access to the solar-generated electricity without requiring you to pay for the installation. Instead, you're renting out your roof or a plot of land to a solar energy developer. In that region, this developer will design and install a solar system. They will then sell you the power generated by the system at a cheaper cost than you would pay to the utility company. This is referred to as an operational lease.

While this seems fantastic on the surface, there are a few factors to consider. Because the solar developer owns the solar system, you will not receive any tax breaks; they will. You'll also have to pay for power on a monthly basis.

Furthermore, you will continue to pay for your power per kilowatt-hour, but not to the utility. The cost per kilowatt-hour from a solar developer should be lower than from a utility. However, you must carefully review the PPA to verify that there is no price escalation in the contract that drastically increases the cost of power after a specific period.

PPAs are often long-term agreements, lasting 20 to 25 years, so be sure you're signing a deal that you're happy with. Any maintenance or repairs will also be the developer's responsibility. However, PPAs and leasing are not accessible in all places or for all sizes of systems. You should check with your local government to determine if this is a viable option.

Government Loans For Solar Panels:

Subsidies for building rooftop PV systems are available from both the Central Government and State Nodal Agencies (SNAs). This encourages consumers to use renewable energy sources and save money on their power bill. Though the initial cost of installing a rooftop PV system is significant, it is less expensive in the long term than electric generators. Rooftop PV systems need no further maintenance once built since they use solar energy rather than fossil fuels.

The Central Government, according to the Ministry of New and Renewable Energy, covers 30% of the benchmarked installation cost for rooftop PV systems. This subsidy is only available to states in the general category. However, in some states that fall under the special category — North MNRE PV Rooftop Cell, — a subsidy of up to 70% of the benchmarked installation cost is available. Uttarakhand, Sikkim, Himachal Pradesh, Jammu and Kashmir, and Lakshadweep are among them. Furthermore, State Nodal Agencies provide subsidies in several states.

This subsidy program applies to the institutional, residential, and social sectors. However, it is not applicable to commercial, industrial, or public-sector enterprises. PSUs are eligible for incentives based on energy generation.

In addition to the subsidy, installing a rooftop solar system provides several other advantages:

• Nationalized banks are offering priority sector loans of up to Rs 10 lakh to those wanting to construct rooftop PV systems. This loan will be classified as a house loan or a home renovation loan.
• Customers would be eligible for generation-based incentives of Rs 2 per unit of power generated.
• Additionally, extra electricity can be sold. They would get a regulated cost per unit based on tariffs established by the government in exchange for this.

Is Financing Solar Panels Worth It?

With government tax breaks and appealing buying and financing options, it's easier than ever to go solar and repay your system's expenditures in 7-10 years in most circumstances. There are also financing options with no upfront costs—just a significantly lower monthly energy bill and a considerably lighter carbon impact.

Summer is right around the corner, so for those of you considering making the switch to solar, we thought we'd take a moment to share our top three benefits of  financing solar panels:

Lower Power Costs and Lower Bills:

The most obvious financial advantage of solar energy is that it may reduce your utility expenses. Actually, it's a straightforward equation. Any electricity generated by your solar panels is power that you do not have to purchase from the utility. When your system generates more power than you consume, it is sent back into the grid in return for an energy credit.

Cleaner Environment and More Sustainable Future:

It is priceless to ensure a cleaner and more sustainable future for future generations. Solar energy is one of the most environmentally friendly kinds of electricity available. With guarantees of up to 25 years and an active production life of 40-50 years, your clean energy solar investment will benefit both your children and grandkids.

Short Term Solar Tax Incentives:

There are now significant federal solar tax incentives available that may cover almost one-third of the cost of a solar system through a 26 percent tax credit. This 26 percent tax credit will be reduced again at the end of 2020, so act now to maximize the return on your solar investment. The state of Arizona also provides a $1,000 reward.

There are also appealing financing and leasing alternatives. It is now fully viable to go solar with little to no out-of-pocket expense. If your monthly lease or loan payment is less than your usual bill, you'll still have money in your pocket at the end of the month plus many decades of regular energy expenditures.

If you've been thinking about going solar, now is the time to do it! With the 26 percent solar tax credit set to expire soon, getting solar now will assure the greatest and quickest return on your investment.

How Does A Solar Loan Affect Credit Score?

The lender will consider your debt-to-income ratio and credit score when you apply for a solar loan. These numbers assist lenders in determining if you have a history of debt repayment and can afford to take on further debt.

Solar costs less than what you'd pay your utility company throughout the life of your solar array. Nonetheless, lenders are unconcerned about the fact that solar is not an additional price, which is why many organizations check your credit score before approving you for a loan. The precise influence of your credit score on acquiring a solar loan is determined by how you finance your panels. If you wish to pay for them with a personal loan, you will typically need a credit score of at least 550 to be approved. Borrowers with good credit often obtain the best repayment terms and rates.

Again, if your credit is great, you will be able to apply for personal loans with extremely low-interest rates. A low-interest rate may save you a considerable amount of money over the life of the loan—even a 1% difference can result in significant savings.

Wrapping Up:

When it comes down to it, no commercial solar system financing solution will be the ideal option for all organizations. Everything boils down to cash flow, credit, and tax liabilities.

Having said that, we are firm believers in solar system ownership. It frequently provides a high return on investment and allows you to take full advantage of all tax breaks. A PPA with transparent and reasonable conditions, on the other hand, might be a terrific method for your organization to become green and save some green if ownership is just not an option.

Determining the best approach to finance your company's solar system might appear to be a daunting undertaking. But it doesn't have to be that way because we're here to assist.