Loans for Solar Energy Businesses: The Top Options

Loans for Solar Energy Business

It’s a great time to be in the clean energy business. As demand for green practices, like installing solar panels, increases, the price is going down. Homeowners and small business owners can even access interest-free solar panel loans to make their homes and offices more energy-efficient.

However, starting a green tech company can be costly. We’ll cover several options for business loans for solar energy companies, which one is right for you, and how to apply. We’ll also explore small business grants, which can significantly reduce your startup costs.

The Top Business Loans for Solar Energy Companies

Let’s explore the various business loans for solar energy companies. Each option offers a different loan structure and may serve a specific purpose:

SBA Loans

SBA loans are widely considered the best loans available due to their high capital amounts, long repayment terms and favorable interest rates. Also, these loans are guaranteed by the Small Business Administration. However, SBA loans are highly competitive — typically, only top applicants with strong credit and financial track records receive approval.

There are two important types of SBA loans to know about. 

  1. SBA 7(a) loan: This loan offers flexible working capital that can be used for various business expenses. There are two ways the SBA 7(a) loan is structured: First, there’s a term loan, which is a lump sum deposited into your business bank account. Its second structure acts as a line of credit, which enables business owners to borrow a little at a time as they need it.
  2. SBA 504/CDC: This loan is reserved for major fixed assets, such as real estate or machinery. The SBA 504/CDC loan program enables business owners to access up to $20 million of capital and has the longest repayment period of any SBA loan (up to 25 years).

Business Line of Credit

With a business line of credit, you work with a lender to get approved for a certain credit line, and you “draw” against this line as you need it. So, if you have a line of credit for $1 million but only need to finance a project that’s $50,000, you only withdraw what you need, paying interest only on what you use. You can also use a business line of credit for several reasons: cash flow, emergencies, inventory financing, and more.

A business line of credit is typically easier to secure than SBA loans. Younger businesses may be able to get approval (that’s rare for other loans) as well as entrepreneurs who have a slightly spottier credit history. They’re also very fast to approve—you may be able to get a decision in as little as a day.

Invoice Financing

Invoice financing lets you access the money in your accounts receivable before your customers pay. This can be a huge boon to businesses with many outstanding invoices and need to ameliorate cash flow issues quickly.

With invoice financing, you send the lender your invoice and they will front you 100% of the amount due. You’ll pay a small fee for the loan and a fee for every day that your customer takes to pay. When the invoice is paid, you repay the lender for the amount they fronted you, plus their fees. 

Getting approval for invoice financing can be quick with low requirements — lenders typically don’t require perfect credit, high revenue numbers, or extensive business history. Also, your invoice financing is a self-secure loan because your invoices serve as collateral.

Department of Energy

Title XVII of EPAct05 empowered the Department of Energy to guarantee loans for companies that use advanced technologies. Many small business owners use the funds for research and development and for commercializing their green technology. Since this enactment, the Loans Programs Office has secured more than $40 billion in loans for energy infrastructure projects in the United States.

Department of Energy solar grants are a great start in your search for startup financing. If you’re interested, be sure to visit their application deadline calendar to ensure you’re applying on time. Also, please note that some loan applications require a pre-application consultation and some application fees may apply.

Natural Capital Investment Fund

NCIFund is a member of the Opportunity Finance Network, a CDFI trade association. Community development financial institutions (CDFI) are private entities that financially support small businesses. Also, NCIFund is a 501c3 non-profit organization that offers debt financing to companies that help create a more sustainable environment.

NCIFund is an approved SBA 7(a) Community Advantage Lender and you can secure up from $5,000 to $750,000. Terms and interest rates will vary by prime rate, loan purpose, repayment terms, collateral, and credit history. However, NCIFund serves only certain regions: West Virginia, North Carolina and the Appalachian regions of Kentucky, Maryland, Ohio, South Carolina, Tennessee, Virginia and Georgia.

Exploring Grants for Solar Energy Businesses

Because you’re contributing to the growth of clean energy in a time where the thirst for alternative eco-friendly energy solutions is high, you might also have the opportunity to secure small business grants. Below is a list of grants you can consider in your search for financing.

The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR)

The SBIR and STTR offer highly competitive programs that stimulate technological innovation within the private sector. The SBIR and STTR offer federal grants that cover research and development. That means you can’t use these grant funds for working capital or to purchase equipment.

Funding for these programs occurs in stages. For example, you can secure up to $250,000 in the first stage, which will help you validate your research and development efforts over six months. In the second stage, you can secure up to $1.7 million to continue your research over two years.

To qualify for a grant, you must meet several requirements, including the small business definition under 13 CFR 121.702 and employ no more than 500 employees.

State and Local Energy Efficiency Programs

The Small Business Administration has compiled a list of state-specific resources for energy efficiency programs. You may find local and regional programs that help small business owners more energy efficient within each state. This can also include for-profit businesses that develop energy-efficient technology.

For example, the Wyoming Business Council State Energy Office offers the Small Business Energy Audit Program. This program provides up to 75% of up to $4,000 for level 2 energy audits.

As a solar energy company, you likely are already compliant with some green energy recommendations. This increases the likelihood that you qualify for certain financial incentives available within your state.

The Office of Management and Budget created to help connect grant-seekers with federal grant-making agencies. By using keywords, you can search their online databases for all the grants available to your business.

Keep in mind that many grant programs will require that you meet specific qualifications and submit a grant proposal. Be sure to confirm your eligibility before you go through the often time-consuming grant application process.

You will also need to create an account and register your business before you can start using their online database.

Applying for Solar Energy Business Loans

Luckily, the applications for most business loans for solar energy are fairly simple and straightforward. There’s one exception to this, which we’ll review.

Decide Which Loan Is Right for You

There are a lot of options to find business loans for solar energy companies. Many of these options are dictated by both what you want out of a business loan and how lenders will view you as a loan candidate.

As you begin your search, think about the following:

  • How quickly you need access to capital
  • How much capital you need
  • What you’re going to use the money for
  • How much time and effort you’re willing to put into the application
  • How long you’ve been in business
  • How much revenue you generate
  • How healthy your cash flow is
  • Your credit score

All of these factors will not only determine the loan that’s best for you but also help you see which loans you’re qualified for.

Gather the Necessary Documents

Generally, most lenders have several documents in common that they’ll request when you’re applying for a business loan. You might find that, as you get deeper into the application process, your lender will ask for a few additional documents. But gathering the following will help you get a jump on your application—and, in many cases, speed up the approval process:

  • Two years of business tax returns
  • Two years of personal tax returns
  • Three to four months of business bank statements
  • Profit and loss statement and balance sheet
  • Personal identification
  • The invoice that you need to finance (for invoice financing)

Again, you might need a few more things—or fewer, even—but these will give you a strong start to get a jump on your loan process.

The SBA loan process is quite a bit different. You’ll need the documents listed above, but also some additional paperwork—especially if your business has multiple owners with more than a 20% stake in the company. There are proprietary forms required by the SBA, but many banks will also ask for more records on your personal and business financial history. 

Since there’s lots of paperwork required in the SBA loan application, you should be prepared for this application to take longer than other business loan applications. Accordingly, don’t be surprised if your lender comes back with a request for more documents—this is standard, and they’re just trying to help you get your paperwork to process your application.

The Bottom Line

With the rise of solar financing companies and commercial solar financing banks, homeowners and small business owners make their homes and offices more green. Greater access to solar panels means more business for your solar energy company!

Hopefully, this list of business loans for solar energy narrowed your research. Each loan serves different purposes and takes varying amounts of time and effort to apply to. So, doing some research in advance will help you figure out how to best spend your time and where to direct your efforts.

Founding Editor and VP at Fundera at Fundera

Meredith Wood

Meredith Wood is the founding editor of the Fundera Ledger and a vice president at Fundera. 

Meredith launched the Fundera Ledger in 2014. She has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending and financial management.

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