November 28, 2017: What You Need to Know About Financing Your Energy Efficiency Upgrade
Lack of approved funding from traditional lenders is the number one roadblock to financing your commercial energy efficiency upgrade. In fact, a staggering 2/3rds of proposed energy efficiency projects are denied financing to move forward.
Luckily, third-party financing through lenders such as Taka Solutions allows businesses to complete their projects by offering turn-key financing solutions. Here’s what you need to know before funding your energy upgrade.
What is financing?
Funding doesn’t have to be a barrier to improving energy efficiency in your commercial buildings. Financing is a way to fund your commercial energy projects when your organisation lacks the available cash to self-fund the project.
As more companies realise the value and profitability associated with energy efficiency upgrades, they are looking to third-party lenders to help alleviate the cost and initial investment of their project. Essentially, a third-party lender funds the project and your organisation pays for the energy upgrades through the associated energy savings.
With proper financing, upgrading your buildings will minimise the financial losses associated with energy and water at no initial cost to organisational stakeholders. Once you’ve completed your energy audit to determine where your building will most benefit from energy upgrades, you’ll experience immediate savings from upgraded equipment and technologies, to include:
- Lowered building operating costs
- Minimised risk against rising energy prices
- Increased asset value
- Increased cash flow
These immediate savings will be used to repay your energy improvement project. All that remains is determining which type of financing you require.
Shared Savings Financing vs. Traditional Lending Options
With a shared savings financing plan, a third party lender, such as Taka Solutions, finances all initial energy upgrade costs. They are paid back with the immediate savings your company experiences from the energy upgrades.
With traditional bank loans or lending institutions, you may need to contact many lenders to obtain financing. This is both frustrating and time consuming. With a shared financing model, you’ll have one point of contact to streamline the lending process.
Unlike a traditional bank loan, there are no upfront costs or lines of credit associated with shared savings financing. You sign a customised contract agreeing to pay back your third party lender based on the performance of your energy upgrades. Additionally, there is no capital required to obtain your project funding. Your savings will begin from day one, and that savings will be used in part to pay back the initial project funding. Once you’ve paid off the third party lender, the majority of savings is left in pocket.
You’re already spending the money
You may not realise it, but you’re already budgeting for an energy upgrade. If you haven’t upgraded your building it’s consuming energy. When your building consumes energy it wastes valuable resources and money.
Savings share options can be customised to meet your specific organisational needs and requirements, with contracts ranging from two to seven years. The time it takes to pay back your lending partner will be based on the length of your initial contract agreement. For example, if you sign a seven year contact, your shared savings plan may look like the following:
- Years 1-2: during this initial payback period, 100% of your energy savings will feed back to your lender to repay the costs of the energy upgrade.
- Years 2-5: during the operational period of your contract, 50% of the energy savings will be allotted to repay your lender, with the remaining 50% feeding directly into your cash flow.
- Years 6-7: during the management period of your contract, a small share of your energy savings will be shared with your lender for ongoing management support. All other energy savings remain with the company.
While the above model is just an example, it provides a better understanding to how the shared financing model works for an energy upgrade.
At Taka Solutions, we want you save energy and save money. As your energy partner, we are so confident in the instant savings associated with a commercial energy upgrade that we’ll fund the project from the start, at no initial cost to you. Contact our energy engineers to learn more about how share financing can fund your commercial upgrade.