Renewable Energy Equipment Financing
The SBA Green 504 loan program can be used for commercial real estate or equipment financing with maximum total project costs in the $12 to $14 million range, although larger projects are technically possible.
Historically, the 504 program has been used for commercial real estate construction, but the Green 504 opens it up for the purchase of large solar or renewable energy installations including solar farms.
The Green 504 for equipment is a 2 loan structure with a first mortgage of typically 10 years and a second mortgage of 20 years and it can be used in conjunction with the various state and federal grant, rebate and tax credit programs – including the 30% federal grant.
The biggest benefits of the program are:
- Very attractive long term financing.
- 100% financing with the 30% federal grant (which is assignable to the lender).
- Businesses can have a net worth of up to $8.5MM and net (after tax) income of up to $3MM. This new larger size guideline allows many more (and larger) companies to take advantage of the SBA financing.
- Very low rates – the Green 504 second mortgage is currently 5.14% – fixed for 20 years.
- Most closing costs and soft costs can be financed.
The Green 504 is an ideal program for the purchase and installation of renewable energy equipment, but it can be used for any expensive piece of business equipment with a useful life of 10 years or more.
Update: Februrary 1, 2010:
1. “100% equipment financing” is available using the Federal grant, but most lenders want you to put some equity in the transaction – i.e. “some skin in the game.”
2. Lenders have been slow to offer renewable energy equipment financing using the 504 program. They still prefer real estate over just equipment. They don’t seem to have an issue if the equipment is financed along with a building.
3. There are other options including renewable energy equipment leasing, which could prove to be more attractive for some businesses.
Please visit the renewable energy page of our main site for more info.
View Comments (2)
There is no limit on the underlying first mortgage by a private bank lender for SBA 504. I am told that a $44 million deal was funded.
Loan limits are placed by SBA on its subordinated junior lein.
You are definitely right about the loan limits Jerry.
It seems like with some of the huge state and federal rebates and grants that very large transactions could be funded through the 504, especially since the federal rebate is assignable.