Elements of a Successful Small Business Financing Program
Successful clean energy financing programs have many common elements: a simple application process, fast credit decisions, reasonable pricing, and fast loan closings with documents that are written in plain, easy to understand language. In general, small businesses use the interest rate as a litmus test to confirm that they have a “good deal.”
So a grantee’s loan program rate should be at least as good as, and preferably better than, what the small business could get on its own. The small business owners’ perception that they can get a better deal somewhere else will slow the decision process and may result in the clean energy project never being implemented because the owners get pulled back into the daily needs of running their small businesses.
Successful programs like Connecticut’s Small Industrial and Commercial Loan Program, Massachusetts’ MassSaves, and Sacramento Municipal Utility District’s Commercial Energy Efficiency Loan Program directly incorporate trade allies into the sales process. Those allies are the companies that sell and install solar panels, wind projects, and energy-efficient insulation, windows, roofing, hot water heaters, lighting, appliances, and heating, ventilation, and air-conditioning equipment. (Many of those firms may be small businesses themselves.)
From experience, the trade ally companies know that customers don’t usually buy products or agree to do efficiency projects just because of low- or zero-interest rate programs. Rather, attractive financing facilitates the sale of energy efficiency and renewable energy projects only after the buyer has acknowledged the benefits of the projects. Trained vendor salespeople have proven to be extremely important in communicating the benefits of clean energy projects to small businesses and then using financing to “close the sale.”
The financing process itself is critical to a program’s success. One sure way to lose the support of the trade ally network is to delay the payment of their invoices. When setting up a financing program for small businesses, whether it is a proprietary revolving loan fund or working with third- party lenders, grantees are advised to involve trade allies in the program marketing and outreach activities.