Loans for Solar Energy Businesses: The Top Options

It’s a great time to be in the clean energy business. As private individuals and businesses alike embrace environmentally friendly practices and launch responsible initiatives, solar energy is a booming industry—with lots of room to grow. If you’re interested in starting or expanding a solar energy company, then you may need capital to do so with business loans for solar energy endeavors. These businesses, after all, can be very capital intensive. 

We’ll go over the several options for loans for solar energy businesses, review the application process and how to choose the right loan for you, and even talk about some alternative routes for finding renewable energy funding. A bonus: You also might be eligible for small business grants, which could open up a whole additional avenue to secure funding. We’ll review those, too.

What to Consider Before You Start Your Loan Search

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 as well as 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
  • What your credit score is

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. 

The Top Business Loans for Solar Energy Companies

Now, we’ll go through the top loan options for solar energy businesses. As you’ll see, there are different loan structures, which offer you different approaches to securing the capital you’re seeking.

SBA Loans

If you have strong credit and have been in business for some time, then the first place to start your financing search is with SBA loans. These are widely considered the best loans available due to their high capital amounts, long repayment terms, and favorable interest rates. And, as you might expect with terms like these, they’re competitive to get, so only the top applications with strong credit and financial track records get approved.

How does an SBA loan work? What you should know is that these loans are issued through banks, but guaranteed by the U.S. Small Business Administration. In short, what that means is if a borrower defaults on the loan the SBA will provide a safety net for the bank for 75% to 85% of the loan amount. This reduces the risk for the banks themselves, which is why they can offer such stellar terms to qualified candidates.

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

First, there’s the SBA 7(a) loan. This loan, which is the most popular SBA program, enables approved candidates to access flexible working capital that can be used for a variety of business expenses. There are two ways this loan is structured: First, there’s a term loan, which is a lump sum deposited into your business bank account; alternatively, it’s structured as a line of credit, which enables business owners to borrow a little at a time as they need it.

If you’re looking to buy major fixed assets, such as real estate, the second SBA program might be a better fit for you. 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).

We’ll explain in more detail below, but it’s important that you know that SBA loans take some time to both apply to and also receive. You should expect the process to take a few months in total.

Business Line of Credit

A business line of credit is also available from other lenders, including online lenders and traditional banks. This is a highly popular type of business loan, since capital can be deployed for a number of reasons: cash flow, emergencies, inventory financing, and more.

Here’s how a business line of credit works: 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. And you only pay interest on what you use.

Business lines of credit are also often “revolving,” which means that you have access to the full credit line once you’ve paid back the portion you’ve used. So, when the $50,000 is paid off, you can spend the full $1 million again.

These loans are much easier to get approval for than SBA loans, both in terms of credit requirements and time in business. 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

Running a solar energy business probably involves a lot of large invoices that take some time for your clients to pay. For that reason, it makes sense to consider invoice financing, which enables you to access the money in your accounts receivable before your customers pay. This can be a huge boon to businesses that have many outstanding invoices that either aren’t due yet or are overdue, but that need to ameliorate cash flow issues.

Invoice financing is actually very simple in practice: You give the invoice that you want to finance to a lender, who will front you up to 100% of the amount due. You’ll pay a small fee for the loan as well as 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. 

Although you’re paying for the ability to access your own money faster, which cuts into the total of the invoice, this can be huge for businesses that work on long net terms. When cash flow is tight, or you need immediate access to capital to finance a project, having the money upfront can be worth the tradeoff. You can get approval for invoice financing very quickly, too.

You don’t have to have perfect credit, high revenue numbers, or a lot of time in business to take advantage of invoice financing. Your invoices will serve as collateral for this type of financing, making them self-secured loans.

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.

Important Documents for Business Loan Applications

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 Application 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 that are 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 in order to process your application.

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 grant funding. As a refresher, grants are awards given through public and private institutions alike, and they’re cash that you don’t have to repay. Some awards are small, but others can be thousands of dollars.

It’s hard for some entrepreneurs to find grants related to their businesses other than general small business grants. But you’re in a lucky position, as there are many grants available for evolving infrastructure and clean energy. It’s a good idea to look for grants specifically for infrastructure, energy, and the environment, all of which apply to solar energy businesses.

Many of these grants are available at both a state and federal level (such as through the U.S. Department of Energy), so as you begin your search, consider both of these avenues to explore grant opportunities. Another thing to remember: Grants will have deadlines, so make sure you keep track of when applications are due. And don’t forget that even if you miss the deadline for a grant that you think you have a chance to win, many grants open up again so keep your eye out.

One more thing to remember with grants is that these applications often take a while—and you’re not guaranteed to win. So, be judicious about balancing your time with applications and day-to-day operations, since the time you spend on applications is precious time you could spend running your business. With that in mind, you might want to consider narrowing down the number of grants to which you apply so you’re making the most of your time.

Finding the Best Solar Energy Loans for Your Business

Hopefully, you’re pleased to find out that you have many options to look into for solar energy business loans. They all serve different purposes and take 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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