How clean energy contractors help customers access equipment financing

Understanding how commercial clean energy projects get financed can mean the difference between closing deals and customers frustrated by a lack of options. Even businesses with less-than-perfect credit can get approved for financing if they know what to look for.

Whether you’re a contractor installing solar panels, energy-efficient lighting, or other green technologies, knowing the difference between an “application-only loan” and a standard loan keeps customers glued to your business. 

In this blog, we explain what lenders expect of small, medium, and large loans and how you can help customers with bad business credit scores.

How lenders assess creditworthiness

Creditworthiness is an appraisal of how likely your customer can repay its debts. A business is deemed creditworthy when the lender considers it willing, able, and responsible enough to make loan payments under the conditions of the agreement until the loan is repaid in full. If the lender deems the business as a risky borrower, it’s unlikely they will qualify for new credit.

Lenders typically assess the creditworthiness of the business and its owner. A higher credit score can make the approval process smoother, but a lower score doesn’t automatically disqualify the business. Lenders often consider other factors that include:

• Business history: How long has the business been operational?

• Revenue streams: Consistent revenue can help overcome credit concerns.

• Equipment value: The resale value of the financed equipment can impact loan approval.

• Down payment or security deposit: A larger down payment may increase the chances of approval.
• Co-signers: Adding a co-signer can make the loan less risky for the lender, improving the chances of approval.

The scope and rigor of loan approvals depend on the clean energy installation. The next sections describe your customer’s options for approaching different loan valuations.

Application-only loans (under $150,000)

Single solar arrays or energy-efficient lighting installations are typically considered small projects and fall under application-only loans. These provide a fast and hassle-free way for your customers to secure financing.

Application-only loans are based primarily on the customer’s commercial credit profile and don’t require extensive financial documentation. These loans typically require the customer to meet the following criteria:

1. Closely held companies require personal guarantees from all shareholders with a 25% or greater ownership interest in the clean energy project unless other conditions are met. These guarantees must sufficiently capture the majority controlling interest in aggregate.
2. Minimum FICO score of 675 for the majority of guarantors (personal credit score).
3. D&B report of the customer demonstrating liens, judgments, or suits of no more than US $10,000 in aggregate.
4. Minimum D&B Paydex score of 65 unless other conditions are met.
5. Favorable history of paying equipment leases and loans (PayNet Score)

Here’s what you can tell customers:

• Expectations: Lenders will ask them to fill out a basic loan application, typically asking for the legal entity name, business revenue, and the cost of the clean energy equipment. This process requires minimal paperwork to get approved.
• Approval time: Application-only loans are often approved within 24 to 48 hours, making them ideal for smaller projects with immediate equipment needs.
• Impact of credit: For loans that require personal guarantees, the customer’s credit score is critical. Customers with good to excellent credit scores will have an easier time getting approval and securing favorable rates. Poor credit may limit the loan amount or increase interest rates.

Offering application-only loans to your customers helps you simplify the financing process for smaller projects and helps them secure funding more quickly.

From getting your project funded to finding savings once commissioned, contact us to ease the financial impact of your clean energy transition. Let's talk clean energy solutions.

Modified application-only loans ($150,000 – $500,000) 

Application-only loans may still be available for larger projects, such as comprehensive solar installations or facility-wide energy upgrades, as long as your customer has strong credit. They may be required to submit additional documentation to determine creditworthiness.

Here’s what you can tell customers:

• Expectations: While many medium-sized loans involve a detailed review, some lenders offer modified application-only options where customers provide basic business information and credit history with limited additional documentation.
• Approval time: Approval times for medium loans can range from a few days to a week, depending on the lender and the project’s complexity.
• Impact of credit: Strong credit is essential for any modified application-only loan. Businesses with established credit histories and consistent revenue are more likely to qualify for these options.

Larger loans (over $500,000)

For large-scale projects, such as major commercial solar installations, it’s unlikely that application-only and modified application-only loans will be available. These projects require a more detailed review process that includes extensive business financials, project plans, and credit evaluations.

Here’s what you can tell customers:

• Expectations: While large loans are not typically application-only, some lenders may simplify the process for well-established businesses with excellent credit by reducing documentation requirements.
• Approval time: The review process for large loans can take several weeks to months, and the customer’s credit will play a significant role in determining the terms of the loan.
• Lender types: These loans are typically handled by large financial institutions and specialized equipment financing companies.
• Impact of credit: The customer’s credit profile is critical for securing approval, even if the loan process isn’t application-only.

Setting expectations upfront helps your customers plan and manage the application process accordingly. They shouldn’t be surprised by the documentation requirements or the time it takes for loans to get approved.

Securing loans for customers with bad credit

Customers with poor or subprime credit have options available – you just need to bring them to the table to keep customers engaged.

The more popular options are: 

• Alternative lenders and non-bank financing platforms specialize in working with businesses with lower Paydex and FICO scores. These loans often come with higher interest rates and shorter terms.
• Collateral-based loans use the clean energy equipment as security, reducing the lender’s risk.
• Vendor financing from equipment manufacturers can be more flexible, as they have a vested interest in closing the deal.

You can help customers by presenting these alternatives and offering advice on improving their credit profile over time. Knowing lenders specializing in higher-risk loans makes it easier to offer them when the time comes.

Simplifying equipment financing with application-only loans

Offering application-only financing options broadens the type of customers you can reach and increases your likelihood of closing deals. They simplify the loan application process for all parties and often lead to shorter review timelines than standard loan approvals. 

EnPowered’s Financing Accelerator supports standard and application-only financing solutions, providing a flexible online platform to improve the contractor-customer-funder experience. A large network of funders, streamlined documentation processes, and instant proposals ensure a transparent, efficient sales process.

To learn more about Financing Accelerator, book a call with one of our experts now.