Small Business Financing Options for Clean Energy Projects
This section of the guide reviews traditional financing options available to small businesses for clean energy projects outside of the American Recovery and Reinvestment Act (ARRA), and the ways grantees can use ARRA funds to facilitate loans for energy efficiency and renewable energy projects in the small business sector.
Small business owners rarely have much time to spend to arrange financing unless they see a large direct benefit to their company. In an expanding economy they are inclined to invest in projects that increase sales, while in tight economies they focus on reducing expenses, saving money, and surviving. Spending money to save money can be a difficult argument to make to a small business owner, especially in a down economy. Yet lessons learned from the successful experiences of small businesses since the mid-1990s show that energy efficiency and renewable energy projects demonstrate time and again their capacity to improve the cash flow of a small business. See ENERGY STAR’s Success Stories by State.
According to the ENERGY STAR® program, 30% of the average utility bill pays for wasted and/or underutilized energy. Financing energy efficiency projects is a way to capture the value of the waste by monetizing current and future energy savings that come from installing energy efficiency and renewable energy improvements.
Small businesses, however, generally find it difficult to obtain financing for their clean energy projects; and when they do, they often feel that the rates are high and the repayment terms short. Funds provided by ARRA can be used to support small business financing programs by providing low-cost capital to revolving loan funds for direct lending and/or credit enhancements to existing lenders to help reduce program risk. That should result in improved loan pricing and longer terms to the borrower for clean energy projects. However, ARRA funds come with certain strings attached, which can affect a project’s cost and small business’ willingness to engage in the financing. For example, Davis-Bacon (prevailing wages) and National Environmental Protection Act compliance requirements can have the effect of increasing clean energy project costs.
Learn more about:
- Elements of a Successful Small Business Financing Program
- Defining Small Business
- Small Business Legal Structures - Big Is Better, But Not Always
- How Is Credit Risk Determined for a Small Business
- Financing Process for Small Businesses
- Small Business Administration Loan Guarantees
- Working with Community Development Financial Institutions
- Use of Recovery Act Funds in Small Business Lending.
You can download the guide’s entire chapter on Small Business Financing Options for Clean Energy Projects.