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Growing your solar business with financing

Posted by Conlan O'Leary on Feb 20, 2018 11:57:42 AM
Conlan O'Leary

As a solar installer, you know that it’s not hard to convince potential customers of the benefits of going solar – the challenge comes when you have to explain how much it costs. No matter how much the cost of solar has fallen in recent years, the prospect of a five-figure upfront expenditure for an investment that will take years to pay back is simply a non-starter for most homeowners.

That’s where financing comes in. The ability to offer your customers loans, leases, and other financing options transforms solar from a big hit to their household budget into a smart investment that will have them in the black from day one.

That kind of value proposition is a lot more likely to turn into a sale. In fact, the vast majority of homeowners going solar utilize some form of financing. But integrating a full range of these financing options into your business isn’t easy – and neither is understanding which option will be the best fit for a given homeowner’s particular circumstance, let alone explaining it all to your customers.

Sighten is here to help! We’re excited to announce our Navigating Financing webinar series, where you can learn the ins and outs of all the major types of financing – who to target, how to sell, program requirements, pros and cons, and much more! We’re kicking things off with a deep dive on lease financing the week of February 26 - sign up here. The webinar is free, and we guarantee you’ll learn something to help you grow your solar business!

Let’s get a head start with a quick overview of the main types of financing relevant to your solar business.

Understanding solar financing options

Broadly speaking, solar financing options can be broken down into two categories: financing for customer-owned systems, including loans and PACE financing, and third party-owned financing, via PPAs and leases.

Customer-Owned

Loan: Like mortgages, solar loans let customers pay off their installation over the long term – usually monthly payments over a 5-25 year period, with a low or even $0 upfront payment. Loans can provide financial advantages, including the ability to receive the 30% solar tax credit and increased home value, but some loans may have credit score requirements that can be a barrier for certain customers. There is a great deal of diversity in solar loan programs, with options for combo loans, same-as-cash loans, long term loans, buydown loans, all with variable fees and a range of interest rates, so understanding the specific details of your loan program is very important.

PACE: Property Assessed Clean Energy financing, known as PACE, is a publicly-administered alternative to loans that allows homeowners to pay for their solar installation over 10-20 years through their property taxes. This offers the advantage of more flexible credit requirements, a low cost of capital, and may also allow for the inclusion of energy efficiency improvements. However, PACE loans are only available in certain states and municipalities. Additionally, they can be more complex to explain to customers and typically involve a lien on their home.

Third Party-Owned

PPA: With a PPA, or power purchase agreement, a customer’s solar system is owned by a third-party financing company, who then provides them with solar power at a fixed rate, typically lower than the rate offered by their utility. Homeowners going solar with a PPA have no responsibility for the ownership and maintenance of their solar installation and also don’t need taxable income as the solar tax credit is monetized by the third-party financing company. However, homeowners going with a PPA option may benefit less from tax credits or an appreciation in home value. PPAs typically also have stricter homeowner credit requirements relative to customer-owned financing.

Lease: Solar leases are similar to PPAs in their advantages and disadvantages; the main difference is the payment structure. Instead of paying the third-party solar owner for the kilowatt-hours generated by their installation, the homeowner pays a fixed monthly fee for the installation itself. This means leases are typically simpler and easier to understand than PPAs, making the sales process more straightforward. There is risk, however, that the homeowner could overpay for solar power if the solar system underproduces, given the fixed monthly payment not strictly tied to kilowatt-hours produced.

Integrating financing into your solar business

Understanding these financing options is one thing; explaining them to potential customers is another. Given the wide variety of providers, programs, products, and terms, even within a single type of financing, it’s critical to convey expertise and confidently navigate all manner of financing if you want to maximize your potential customer base.

As part of our offering for solar installers, Sighten is rolling out expanded content and functionality dedicated to all things financing, including articles, webinars, and continued rollouts of integrated financing options (financing available directly in the Sighten platform). These resources can help you effectively add financing options, expand your potential customer base, and ultimately close more deals and grow your solar business!

Get started by signing up here for our first webinar on lease financing and keep your eyes peeled for more exciting announcements in the coming weeks!

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Topics: Financing, Sighten