A prime way small to medium businesses (SMBs) are showing their desire to go green is by turning to solar energy. However, due to installation costs, many traditional lenders are leaving SMBs out to dry. Not all hope should be lost though. Fintechs have an opportunity to step up to fill in the gap in the market according to Sunstone Credit.
From tax incentives, to lower utility bills, to appeasing customer preference for sustainability – solar panels are a great way for SMBs to have a good environmental impact. However, businesses are often overlooked for loans due to installation prices, meaning they either have to pay the entire cost upfront, something most can’t afford, or forgo the renewable project altogether.
Josh Goldberg is the CEO and co-founder of Sunstone Credit, a technology-enabled clean energy financing platform that helps businesses go solar. Goldberg has spent the past 15+ years founding and operating businesses in the solar installation, development, and financing space including Astrum Solar and Sunlight Financial.
Sitting down with The Fintech Times, Goldberg explains how fintechs have an opportunity to address the issues surrounding solar lending.
It’s time to rethink commercial solar financing
In 2022, solar energy accounted for approximately five per cent of all energy produced in the United States. Roughly 40 per cent of that solar production was generated by smaller-scale distributed solar systems – e.g, from solar panels on houses and commercial buildings.
Smaller-scale distributed solar installations are as popular as they are in part because of the significant financial savings they offer directly to property owners and the relative ease of installation. But until recently, the benefits have gone mostly to individual homeowners and large corporations. This is due to both having access to a variety of financing options that help offset the upfront cost of going solar.
SMBs tend to have extremely limited access to financing options suitable for solar. Therefore they have largely been unable to enjoy both the financial benefits of going solar and the bigger-picture benefits of switching to renewable energy. This problem has been compounded by the difficulty in serving the SMB market. In turn, this has left the major solar finance companies focused on either consumer or large commercial and utility-scale financing innovations.
But the tide is turning. Increasingly, fintech startups are developing models to make solar panel financing work for the 30 million SMBs that operate in the US. Key to scaling: a better-together approach that unites players throughout the solar ecosystem to make solar energy more accessible to everyone. Let’s take a look at how this is playing out, thanks in large part to fintech innovation.
For regional banks, a customer draw with ESG bona fides
Since the collapse of Silicon Valley Bank in March, many regional banks in the US have seen an outflow of deposits. This increased cost of funds as customers seek the safety of the big five banks for their savings accounts and banks compete over deposit and CD rates. But the problem, for the most part, isn’t fundamental stability (outside of a few banks with less conventional business models like SVB). It’s the rumor mill that fuels bank runs.
Rather than fighting a battle to convince customers to keep and return those deposits, regional banks have an opportunity to attract new and retain existing commercial customers by offering net-new products. One prime opportunity: financing solar projects for SMBs.
In addition to attracting new SMB customers, financing solar panel installations can help regional banks meet ESG targets outlined by regulators and investors. All the while also increasing net interest margin. Lending to SMBs installing solar is a fantastic way for banks to achieve their ESG goals with a product and customer who looks a lot like their core commercial lending relationships. Not an esoteric ESG-only product with questionable economic prospects.
The main challenge for these banks, then, is confidently underwriting solar installation projects. It’s a big challenge in the best of times. Given the state of the economy, many regional banks are particularly cautious right now about offering new products.
But that means now is the perfect time to start exploring fintech partners who have expertise in underwriting SMB solar installations. In addition to product-specific expertise, regional banks should ask potential partners about their ability to actually facilitate installation projects (e.g., via partnerships with solar installers and developers).
For installation firms, access to a new customer base
The solar boom has been good to solar installation and development companies overall. But the difficulty SMBs have had in accessing financing for solar projects has meant that installers and developers are effectively missing out on a massive and lucrative customer segment.
And then there’s the question of connection. A solar enthusiast homeowner may happily devote hours to tracking down an installation provider; an enterprise-sized company has a team for that research. Even if SMBs did have ready access to financing for solar panels, it’s likely they’d have neither the time nor the expertise to identify a provider to work with.
By partnering with players on the financing side, solar installation firms can establish credibility for SMB customers who are in a position to pay for their services – in theory, anyway. Given that few banks currently have the experience or expertise to underwrite SMB solar panel projects, direct relationships with financial institutions may require significant work without offering much benefit.
Again, fintechs can help close the gap.
Fintechs as facilitators in the solar financing space
Fintechs succeed when they solve a niche problem for a niche market. They thrive when they can scale that solution.
Fintech startups that figure out how to facilitate SMB funding for solar panels have the potential to change the face of solar energy in the US: by combining their best-in-class practices for underwriting solar as an asset with banks’ best-in-class practices for SMB lending, they can make it possible for banks to confidently lend to a new customer base. By partnering with best-in-class solar installers, they can ensure that viable projects get done and start having impact as soon as possible.
That impact can be transformative for SMB owners and property owners, who can enjoy immediate savings on their utility bills, avoid the uncertainty of future utility price fluctuations, and appeal to the growing consumer preference for sustainability.
Key to enabling this transformation is fintechs’ embrace of their role as not just subject matter experts or process enablers but also as facilitators of the many parties involved in the solar energy transition.
We need everyone on board to bring solar to SMBs
The real beauty here is that nobody is going to solve climate change alone: no single business installing solar panels, no single bank meeting its ESG targets, and no single fintech startup developing a new way to connect people to financial products.
To address the threat of climate change, we need everyone. Mutually beneficial partnerships that make solar energy more accessible for SMBs and that therefore increase the use of renewables are a win-win – and an increasingly urgent priority as the planet warms.
