Garnet Capital Advisors Blog

EXCERPT: Solar panel companies are increasingly taking a back seat when it comes to financing these systems, while banks are increasingly assuming a bigger role in the world of solar panel lending.

Solar panel lending is a profitable loan for bank to make, and beneficial for the borrower as well.

When it comes to solar panel installation in residences, homeowners have the option to either lease the panels or take out a loan. Both offer immediate savings because monthly loan or lease payments will be less than monthly savings on utility bills. However, solar loans typically come with more monthly savings compared to a solar lease because of tax benefits and the fact that solar loans are usually paid off within 7 to 15 years, as opposed to leases which require regular payments over the life of the contract.

In fact, loans that are taken out to buy rooftop solar panels can save consumers as much as 29 percent compared with lease agreements, according to the National Renewable Energy Laboratory. Under an average five-year loan, the cost of energy is approximately 14¢ per kilowatt/hour, compared to 20¢ per kilowatt/hour under a lease. Therefore, homeowners are able to take advantage of much higher energy savings compared to what they would save over a 20-year lease period thanks to current low-interest solar loans.

Homeowners can also take advantage of the Solar Investment Tax Credit, which offers 30 percent of the cost of solar panels in waived taxes. The caveat is that households must pay enough in federal taxes each year in order to qualify for the full extent of this credit.

Banks Make Solar Panel Loans More Affordable

As recent as five years ago, homeowners didn't have much to choose from as far as solar panel loan products were concerned. Homeowners would typically have to take whatever solar panel companies offered in terms of financing, which often wasn't necessarily affordable or convenient.

Seeing such a void to be filled, banks and lenders are stepping up to offer solar panel lending. Lenders can offer consumers a cost-effective loan product and both, consumers and lenders, will benefit.

The federal government has also made strides to make solar panel loans a lot more affordable for homeowners. It's already issued millions of dollars in grants to help banks securitize solar panel system loans through an FHA guaranteed loan program. Government-backed solar loans could work out to be cheaper compared to solar leases for an average-size residential solar panel system.

Many solar businesses are shying away from offering loans, with the best deals more likely to come from banks.

Even with interest rates being as low as they have been over the recent past, it's still a better deal to take out a loan to finance a solar panel system as opposed to refinancing mortgages to access such funds. Many bank appraisers aren't fully aware of how to value these systems and often incorrectly report the value at zero, even though the value is certainly there. That means the average homeowner wouldn't be able to cover the entire cost of a solar panel system through a refinanced mortgage or home equity loan.

As helpful as government-backed loan programs may be for financing solar panel systems, those offered by banks can be even more affordable.

In addition, bank loans make more sense compared to solar panel companies driving their own financing programs. In fact, solar companies started scaling back on financing their own projects over the past year. The cost of these loans for consumers has significantly declined as small projects started to be increasingly financed by bank loans and small lenders.

Larger developers with projects on the books also started looking to sell their projects even before construction began. At the end of the day, financing solar panel systems - and the inherent risks that come with them - are increasingly being left to banks and lenders that are more capable and prepared to assume them, while solar companies are focusing more on developing systems that maximize energy production and reduce costs associated with it.

Establish a Solar Loan Buying Program With the Help of a Seasoned Loan Sale Advisor

Banks and lenders can successfully develop prudent solar loan buying programs while remaining compliant by enlisting the services of experienced loan sale advisors like Garnet Capital. Our team can help establish such programs with diligence and compliance in mind.

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