Solar Loan Funding Models: Why They Matter

Have you ever wondered how your solar financing partners source funds for their loans? Or maybe you’re asking yourself why you should even care? The way your finance partners source their funds can have a direct impact on their ability to provide a trusted and reliable financing service. For example, do you trust that your solar loan partner will expedite your installation and that you’ll always get paid…quickly? Because financing plays such an integral role in the solar sales process, the model used by solar financiers can directly impact the customer experience and, most importantly, the success of your solar business.

Residential Solar Loans: Two Business Models

There are two primary business models in the residential solar loan market–the “FinCo” model and the bank partnership model. Today, most providers of solar loans are FinCos. These FinCos must raise their own loan funds which pass through their balance sheet.  FinCos take on the risk associated with maintaining and re-selling loan portfolios. This model can subject the company and its installation partners to significant market volatility and as a result, the availability and/or cost of funds can fluctuate based on market conditions. In addition, because FinCos are not banks, they must develop new expertise in origination and underwriting, whereas banks already have extensive processes in place to carry out these activities in a compliant way.

Within the solar loan space, the bank partnership model has been pioneered by Sungage Financial. The partnership model is motivated by the observation that unlike solar companies, banks and credit unions have decades of institutional experience providing consumers with compliant and safe financial products. However, they often have limited solar knowledge. Sungage brings solar expertise to the partnership with exceptional solar-smart customer service, product innovation (e.g., tax credit deferrals), technology tools, and strong installer relationships, which the bank would otherwise need to develop itself.

Financing You Can Count On

One of the most important benefits of the bank partnership model is reliable access to funds, which insulates solar installers from the ups and downs of the financial markets. In this model, the loans are booked directly onto the balance sheets of the depository institutions. Considering that there are close to $12T in deposits in US banks, that’s a lot of capital to go around. In the partnership model, typically the bank provides a standing commitment to fund loans with no cap, providing a virtually unlimited source of funds. Recently, Sungage entered a new partnership with NBT Bank, a 150-year old institution with $9B in assets. By having a stable and deep source of funds, Sungage has never failed to fund a project or limited partners’ loan volume.  In addition, a bank partnership model may mean more stable loan interest rates because the cost of funds is established when the loan is funded by the bank, in contrast to the uncertainty associated with building and reselling loan portfolios in the capital markets.  

The Sungage Philosophy

Sungage pursues a bank partnership model because our priority is to be the most trusted and reliable financing service in the home energy revolution. This model allows Sungage to guarantee an extremely stable source of capital for our installer partners. And equally important, it gives Sungage the ability to be laser-focused on providing unparallelled customer service. In fact, installers can seamlessly embed Sungage’s solar finance service right into their sales processes and daily operations, giving them the peace of mind and freedom to focus on what they are good at – closing more sales and growing their businesses.

Building a residential solar business is not easy and working with the right finance partner is critical to success.  An understanding of the different financing models will help you select the partner to best meet your business challenges.
Additional Questions?

For more information on solar loan funding models or financing options, please reach out to Sungage Financial at 1-844-SUNGAGE (786-4243) or use our live chat.