So you’ve found the right energy efficiency provider and you’re ready to schedule an audit. At this point you’re probably wondering how you’ll eventually pay for the upgrade. Fortunately, many lenders see the value of energy efficiency and have created attractive alternatives to traditional financing options. Take a look at the 4 financing options below to see out which one works best for your business.
Note: Almost all energy efficiency upgrades qualify for a utility-funded rebate, meaning the utility company will cover a significant portion of the total cost. The financing options below refer to the post-rebate amount, which is the remaining cost to the customer once the rebate has been applied.
Next to paying in cash, a bank loan will provide the best return on investment (ROI). With decent credit, business owners can secure a loan with an interest rate around 4.5% – 5.5%. The low interest rates are certainly attractive, but the application process is often lengthy and difficult.
Utility Company On-Bill Financing
Some utilities will finance a portion of the post-rebate job cost. They will spread the amount over a period of 12-24 months and include the payments on the customer’s electric bill. This is a great option because it is truly interest free, however, the short repayment period could affect cash flow. Also, the customer may be required to pay some cash up front if the utility doesn’t finance the entire post-rebate cost.
Mass Save “Interest Free” Loan
This is a normal bank loan facilitated by Mass Save, which allows the customer to repay the post-rebate amount over a period of up to 7 years. The utility company will pre-pay the scheduled interest payments on the loan, but they use part of the rebate to fund these payments. This reduces the overall rebate amount, leaving the customer to fund a larger share of the total project cost. However, this is a much better option for cash flow since the repayment period is much longer. The Mass Save loan is much more popular for residential rather than commercial upgrades.
An equipment or capital lease has fixed terms and monthly payments, usually with $0 down. At the end of the lease there is usually a buyout for $1. The entire project cost, including consulting fees and labor, are covered by the lease.
The application process is very simple and approvals are typically delivered within 24 – 48 hours. The lease won’t reduce the customer’s borrowing limit with other lenders, so some business owners might find this option very attractive. For some businesses there can be specific tax benefits to leases, too. The downside is that the lease interest rates are a bit higher than the other loan options.