As solar professionals take an increasingly involved role in helping their customers secure loans, it is important to have a thorough understanding of how various options can affect a client. Financing offers can vary greatly from one lender to the next, particularly in the small-medium sized commercial space. Small but important variations in a lender’s approach can result in significantly more work for you or your customer—even worse, your project could be stopped in its tracks. Here are three questions you should ask and understand the answers to when speaking with new lending partners.
How will the loan be collateralized?
Most lenders are going to want to establish a legal claim to some form of collateral, which they would receive in the event of a default. The mechanism used to establish this legal claim is often a lien, which might take one of several forms discussed below. These liens are typically secured with a UCC-1 financing statement, which is filed with a state or county agency and then made public to other current and future lenders.
If the lender is securing their loan with an all assets lien, the loan would be considered recourse debt, allowing them to recoup losses by laying claim to any of the borrower’s assets. Sometimes, if the borrower is a small business, the owner will be required to sign a personal guarantee, submitting their own personal assets as collateral as well.
If a lender is securing their loan with a lien on the customer’s real property (land and building(s)), they may require consent from the current mortgage lender. Without much reason to approve this request, refusal from a current mortgage lender is common and could short-circuit your project.
Some solar-specific lenders, like Wunder Capital, will use a fixture filing so that in the event of default, they would own all equipment associated with the system and the power being produced from the system. Collateralizing the loan in this way can avoid both the common issues discussed above and often allows lenders to service a wider range of customers. Concerns that have arisen with this form of lien in the past were often due to a customer being unaware of its existence, or the collateral description not appropriately specifying the limitations of the claim.
What are your prepayment policies and fees?
While not usually a deal-breaker, prepayment policies can be very important to borrowers. This is particularly true in the solar industry, where customers are often expecting to see at least one incentive payout after project completion. For example, if borrowers want to use their ITC benefits, SREC income, or state rebate to pay back a portion of their loan ahead of schedule, it is important to ask a potential lender how they treat early or unscheduled payments. Some may not allow it at all, while others will charge fees.
If your customer has a large cash incentive on the way that they would like to put towards the project, make sure you understand the prepayment fees of their potential loan. Your customer may want to consider the possibility of reducing the loan request by the expected incentive amount and floating that cost themselves until it pays out.
What does contact with the lender look like after contract execution and loan disbursement?
While securing financing for the project might be the last hurdle for you, it is just the beginning of the customer’s relationship with their lender. You don’t want to work hard creating a happy customer only to hand them off to a difficult lender that will sour their solar experience.
When working with large lenders, ask about the account management and customer service team. If something goes wrong, bank account information needs to be changed, or a late payment reconciled, will the borrower know who to turn to?
When working with smaller lenders, ask about their internal processes. Will your customer be able to schedule automatic transactions? Will they be able to perform basic self-service tasks like updating their billing address, connecting a payment account, or checking their balance?
Knowing the answer to these three basic questions can save you and your customer a lot of time in this step of the process. Not to mention, it serves as a differentiator in an increasingly competitive sales market and makes you a better partner for financiers.
Originally published in Solar Power World.