When it comes to commercial solar, many industry leaders believe the space is too fragmented, the industries too varied and the loan application process too complex to gain mass adoption. They are wrong. Boosting commercial solar is, indeed, a challenging transition, but it can be done using the success of residential solar as a model to follow.
To be clear, even residential solar was not always easy or popular. For years, traditional banks offered home improvement loans for solar investments, but uptake was slow. Banks had neither the expertise nor the sales focus. What’s worse, when homeowners expressed interest in investing in solar, the loan application technology was so slow and dated that many prospective buyers simply dropped out.
Momentum shifted circa 2010 when homeowners started to see that the monthly financing cost of solar could actually be less — in most cases, 20 to 40% less — than their current utility bill. The sales pitch became as easy as, “Do you want to save money each month?”
Silicon Valley fintechs took the next critical step by introducing thoughtfully built platforms that allowed homeowners to input their personal information and receive a secure loan approval in minutes. No more chasing down paper documents, no long waits — a true game-changer.
Commercial solar can take advantage of these same lessons. The market opportunity for commercial is clear and enormous. Less than 5% of commercial rooftops currently have solar. Just consider all the naked, sun-soaked roofs of any shopping plaza or industrial complex. And like residential, commercial solar offers major cost savings to business owners — boosting both profits and margins for users. What business doesn’t like to save money?
But that’s where the comparison ends. Today, the standard commercial financing process is far too clunky. It was built for a small segment of commercial developers, not the majority of solar installers. For instance, the process requires business owners to track down extensive financial documentation — from profit and loss statements to balance sheets and tax returns — to get financing approval.
Between regulations, taxes and finding talent, small business owners don’t have time to chase down documents going back years. Even the smallest amount of homework can derail a transaction.
That challenge is the industry’s opportunity.
Capturing commercial solar
Commercial projects, unlike residential, are not cookie-cutter. The commercial landscape includes everything from a local small business to utility-scale developments, from manufacturing facilities to community solar farms. That’s why the industry calls it the “messy middle.”
But if we segment projects into predefined sizes, industries and business types, lenders can develop tailored, out-of-the-box financing solutions for each group ahead of time. Small business owners could then quickly see the investment and savings without needing to jump through a million hoops — and have an approval waiting for them.
In other words, small business owners could buy solar just like a homeowner.
To make the process even simpler, commercial solar lenders should begin to underwrite solar loans based on the personal credit of business owners. This step would dramatically reduce the loan application headache for everyone. OneEthos, for example, is already working to underwrite loans up to $350,000 based simply on the business owner’s personal credit. This amount encompasses a huge swath of the addressable small commercial solar market. And the approval process is virtually instant and paperwork free, just like residential.
This common-sense approach is going to be a boon for the commercial solar industry. It will have all of the right market-friendly incentives to take tangible steps in the fight against climate change. And most importantly, small business owners will save money on their utilities and have more resources to invest in growing their business. It’s a win-win.
The boom in residential solar didn’t happen overnight. The same goes for the impending growth of commercial. But by simplifying the process and introducing smart financing technology, we can hang a new sign on the door for commercial solar: Now Open For Business.
There are many unique obstacles for commercial rooftop solar – NNN leases, Cap Rate impact, demand-based billing (reducing value of kWh in commercial), system/asset valuation at sale of building asset, low “house meter” usage (and associated challenge of many meters for many units, sometimes intermingled after many tenant improvements), wet-stamp engineering needs, complexity of install if over 2/3 stories, possibility of rock ballast removal, challenge of tax benefits to REITs, recapture of depreciation OpEx savings, roof-age (and possible need to align 30yr solar asset with new roof to avoid a costly DeRe… Access to easy loans can help some but other obstacles are significant.
Agree with your comment. Also, commercial properties often have more complex ownership & decision-making structures with multiple stakeholders (property owners, tenants, investors, boards) which makes decision cycles longer and more complicated. CRE investors and business owners are also motivated by different factors when it comes to deciding whether or not to implement solar.
I agree many small owner-occupied businesses may benefit from a simpler loan process, though I’m not sure how much it would help the $300k-$2M projects in the commercial space which differ so drastically from residential.