When embarking on a green project, the first thing to do to make it a success is to get adequate financing.
It is not always possible to fund a project from your own money especially if the scale of the project is big hence sometimes you have to rely on investors or loans as a lainaaja.
It is not always possible to fund a project from your own money especially if the scale of the project is big hence sometimes you have to rely on investors or loans.
Since the last economic crisis a few years ago, many financial institutions have held back from investing in any green projects, especially those that involve home properties.
Recently however, people have started buying back into the real estate market and this has instilled confidence in lending institutions.
- Mortgage rates are still low for both commercial and home real estate. This leaves real estate buyers with some change to afford loans for green improvements such as installing solar systems.
- Many people have also gone back into the job market, a factor that has increased their purchasing power and their ability to repay credit.
- A final factor that has led to increased lending for green projects is that banks have started to recover from the effects of over-extending credit.
Due to these positive trends, funding for green projects has started to pick up.
Funding for your green project
Green projects are a new area especially for traditional lending institutions. The loans’ structure is different and the amount of legal work involved is more than that of other loans.
There is a long and established precedence for traditional lending. There are also well-laid down rules that guide banks on when to risk their finances by advancing loans. There are also rules that establish the procedure to follow in the event of defaulted payments or bankruptcy of a customer.
Though the precedence for green financing is not well established, there are certain guidelines that you should follow when getting financing for your green projects. They include:
- Work with banks that have a record for successfully funding green projects.
Certain banks have formed whole departments fully dedicated to giving loans to small, medium and large scale green projects. Work with such banks.
- Choose a financing model
Lending institutions have had a difficult time deciding whether they should treat solar as equipment or as a construction project. There are loan products created along these two lines. Choose the one that benefits you most.
- Make sure the terms of the loan are clear
You should be clear what happens to your equipment in the event of default. Go for a loan that allows for repayment plans as opposed to repossession.
- Make sure you benefit from incentives
Lending institutions may benefit from government incentives targeted at green projects. Make sure that you transfer these benefits to you in order to make your loan cheaper.
- Consider whether your investment is sensible
Talk to an investment advisor about your plans to get an expert opinion about the success rate of your project.
- Be armed with relevant data
There are a lot of benefits to be gained from investing in green projects and some of these benefits are financial. Create the necessary projections of financial benefits to improve the chances of getting financing.
About the author
Montague Rice is an expert on loans and national debt relief, having worked for over 20 years in key lending institutions. Visit his blog to see his views.