The second decision businesses make after deciding to go solar is whether they should pay cash or finance the project with a commercial solar loan. TerraSol Energies Inc. has the unique position to observe our client’s thought process when deciding. In this blog we offer insights into the common factors that businesses tend to use when deciding cash verse finance.
Factors to consider when deciding how to pay for commercial solar.
Businesses should assess their plans and current cash flow situation before deciding on cash verse financing. While sustainability goals are important, cash flow often dictates the investment choice.
When Financing Makes Sense
If a business has other capital projects to finance, it may prefer to inject new capital into the business through commercial solar financing. This approach can be cash flow positive in the first year, as there is no upfront investment outlay. A business can still depreciate 100% of the project, receive the sale value of solar energy credits (SREC), and 30-50% of the federal tax credit.
DEP + SREC + TAX CRED = POSITIVE FIRST YEAR CASH FLOW
When Cash Makes Sense
If a business has a good relationship with a bank that can offer a rate below 7% and no dealer fees, cash payment can yield profitability faster. Over the 25-year lifespan of the system, businesses can expect a return of more than 40%. Make sure you carefully review any and all possible bank fees that may arise throughout the life of the loan. Ask the bank if there is penalty should you pay the loan early.
Financing for Operating Capital
Some businesses may see installing solar as an opportunity to obtain operating capital quickly. These businesses can lower their electric bills, put new money to use, and avoid penalties if they pay off the solar loan early.
Cash verse Solar Loan Conclusion
Businesses should focus on the bottom line numbers when comparing cash and financing options. By assessing their specific business factors, they can make a clear and informed decision. TerraSol Energies offers a free commercial solar report to help businesses evaluate their options and understand the economics of installing commercial solar.