By now, you probably know of at least one local business that has gone solar. Maybe you’re even wondering “How did they pay for that?” Like other investments, solar systems do sometimes have upfront costs, which can be difficult to fit into a business’s budget. However, with today’s state and federal incentives, coupled with some creative lending options, the return on investment (ROI) of a solar system can often be recouped in the first few years of ownership – a real boon, because the lifespan of solar PV systems is usually around 25 years. And currently, these incentives are particularly favorable for smaller businesses.
Let’s look at some of the ways small commercial solar PV systems are being financed in Massachusetts:
- Business or property owner purchases the solar PV system outright using capital funds or a capital loan. Capital funds refers to money that the business has set aside for the purchase of capital/fixed assets, such as land, buildings or manufacturing equipment. As an investment in infrastructure, solar is a capital expenditure and funds set aside for this purpose can be used for the installation of solar PV systems. If a business does not have existing capital funds to purchase a solar PV system, they can finance a solar array with a capital loan from a bank or financial institution. Just like a car loan, the business will pay off the capital over time.
- Business or property owner finances the system with an operating lease. An operating lease offers a solar financing solution to those small businesses unable to fully utilize tax benefits, but want to enjoy the other financial benefits of a solar array. An operating lease requires very low or zero upfront cost, and keeps cash flow liquid, enabling a small business to keep capital for other purposes. Some banks are able to monetize federal and state tax incentives, and use those incentives to provide a lower overall system cost and lease payments. Solar operating lease terms are also typically shorter than the useful life of the solar array; at the end of the lease term, the lessee is able to purchase the system or extend the lease.
- Business or property owner finances the system via a capital lease. A solar capital lease enables a small business to fully finance their system with zero capital outlay as an alternative to purchasing the system through a bank loan or cash. The lessor finances the leased asset, but ownership and responsibility for the system remains with the business. At the end of the lease term, the lessee may choose to purchase the asset outright for $1.
An experienced solar developer can walk you through all the options when it comes to financing, and conduct a feasibility assessment to help you discover if an investment in solar is right for your business.