Loanpal made headlines last month with its plan for a 100-employee operation in Bentonville, but the sustainable home improvement lender’s arrival is a “big deal” for a reason nobody reported at the time.
“No local banks are currently doing residential solar loans, so all this finance money is going out of state.” said Heather Nelson, co-founder and president of Seal Solar in North Little Rock, who expects to partner with the California-based lender soon. “This could make Arkansas lenders reconsider.”
Arkansas Federal Credit Union of Jacksonville, in fact, is “working to develop a product to offer for residential solar,” commercial loan officer Lou Henson told Whispers. “But we don’t know when it will be approved or rolled out.”
For now, he said, solar customers unwilling to pay cash must use “out of state lenders with expensive financing structures” or use home equity or traditional consumer financing, Henson said.
For the past year, he said, the credit union has been offering “financing options for commercial clients who want to use their new solar system as collateral, rather than offering real estate or other collateral to secure the loan,” Henson said. One problem is that things affixed to houses tend to be seen under mortgage terms as part of the property. That makes the solar equipment, as valuable as it is, iffy collateral.
“Most financial institutions have either avoided entering this space or have not figured out how they can,” Henson said. “The primary issues have been both how to secure or collateralize the financing while also properly assigning rates and terms that offset potential loan default risk. Neither of these two issues have been easy for Arkansas financial institutions to wrap their arms around.”
Commercial vs. Residential
This problem applies to both commercial and residential solar projects, he said.
Rates for the commercial solar loans AFCU has been offering are similar to typical commercial loans and have 15-year amortizations, “along with a 15-month interest-only payment structure on the front end that allows time for the new system to be installed, approved by the utility company and to start producing enough electricity to offset the existing utility bill,” Henson said.
The interest-only period also gives borrowers time to receive their federal solar investment tax credit, currently 26% of the system costs. There may also be tax savings from IRS depreciation rules. Companies earning these credits can apply them to the principal balance.
Farmers can reap additional benefits, he said. “The USDA has grants up to 25% of the solar project cost and offers loan guarantees that help financial institutions feel more comfortable loaning money to agri-based businesses,” Henson said. “These USDA programs have application cutoff deadlines and have limited funding. But between this grant and the federal solar tax credit alone, the savings for farms is 51% from the start.”
For more on Loanpal and solar financing, see Solar Finance Evolves as Big Player Arrives.