By Ray Birch
SAN JOSE, Calif.—One credit union that is spending more time in the sun with solar lending believes many more credit unions will be offering similar programs in just a few years.
“I think you see some hesitation now from credit unions to really get involved with solar lending,” said Todd Harris, CEO of the $2.4-billion Tech CU here. “However, in two to three years I think you will see a lot of credit unions enter this space. And in five to 10 years, I would not be surprised to see some sort of solar lending setup similar to what (CU Direct) does for indirect auto lending among credit unions.”
Harris OK’d his credit union’s recent move into commercial solar lending, seeing opportunity to make solar loans to commercial, non-profit and government members. The program will allow members to finance solar systems ranging from $100,000 to $2 million with no money down.
“We have a very successful residential solar lending program that we started 16 months ago,” said Harris. “We have about $300 million in originations since its inception. Our commercial banking line of business saw the results, and that inspired them to replicate the program on the commercial side.”
Great Timing
The timing for the expansion is good, according to Harris, who said that the steep part of the solar lending growth curve is just now arriving.
“Interest in solar systems is beginning to really grow,” said Harris. “I would not be surprised to soon see growth of solar systems similar to what we saw with personal computers and laptops years ago. I think a lot of credit unions have been sitting back and watching this market, assessing what the risk is, and how others do it before they jump in.”
What makes Tech CU’s move into commercial solar lending sound, said Harris, is its well-established commercial lending division.
“We have business development officers and experienced commercial bankers,” said Harris. “We do loans ranging from SBA, to construction, to asset-based lending,” said Harris. “It’s a very sophisticated commercial lending program. Solar lending, which is not much different from asset-based lending, is a natural extension for us—especially here in Silicon Valley.”
For its commercial solar program, Tech CU has formed a strategic partnership a local capital financing company, Belvedere Solar Finance.
“The company specializes in solar lending to commercial clients,” said Harris. “We will do all of the underwriting and retain the loans, but Belvedere will source the loans for us.”
Tech CU’s commercial solar financing program will offer a range of financing alternatives including:
• Leases: for commercial entities unable to use solar tax benefits
• Loans: for commercial entities that can use solar tax benefits, and for non-profits ineligible for tax benefits
• Tax-exempt leases: designed specifically for government entities
Harris acknowledged that commercial solar lending is riskier than making loans on residential systems.
“It’s probably a little further out on the risk curve,” said Harris, who noted that residential solar lending offers some risk-reducing advantages over commercial. “Once the residential system is installed, the installer continues to manage the system and control the solar system’s control box. That allows us to send out a kill signal to borrowers’ systems if they are not paying their loans. We can stop their systems from working.”
No Money Down
The credit union also has a lien position on the home.
“On the commercial side you don’t always have these same types of options,” Harris said.
As a result, Tech CU commercial solar loans will run a few basis points higher than residential loans, which can range from 2.99%-5.99%.
“Residential loan terms tend to run longer, out to 25 years. Whereas commercial solar loans often go out to 20 due to the greater monthly energy savings—so a faster return,” explained Harris.
Harris said Tech CU is comfortable with commercial clients placing no money down on their solar system loan.
“These systems actually increase a company’s cash flow because the loan payments are typically less than the utility bills the loan payments are replacing,” Harris said.