Earlier this year, the United States surpassed five million solar installations in the country. That may seem like a huge number, especially considering that it took us 50 years to get there. However, the reality is that even in the residential segment, which has the highest penetration to date, the percentage of homes running on solar energy is still in the single digits.
Utility-scale and large-scale commercial are somewhere behind that. Conspicuously absent from the party? Small to medium-sized commercial. In fact, by generous estimates, only about 1 to 2% currently have a solar system.
The reason? Money. Specifically, small to medium-sized businesses (SMBs) haven’t had great options for financing. But given the tax incentives currently on the table and a variety of regulatory, social and economic tailwinds, more installers than ever are recognizing that there’s real value in helping SMBs overcome the financial hurdles to going solar. Many of them are in search of funding partners.
Both parties have a lot to gain from getting more commercial customers on board — as do the customers themselves. Here’s a look at how installers can partner with financiers to help SMBs recognize the potential solar represents and bring more of this group into the fold.
A bevy of benefits for SMBs
First, if you yourself aren’t super familiar with the many benefits going solar offers businesses, now’s a great time for a refresher.
We often say that solar is sold rather than bought in this segment, but that’s mostly because of the high upfront cost — the back-end benefits are significant. In fact, few investments offer greater returns for less effort than going solar. Among the perks businesses can enjoy are:
- Reduced utility bills.
- Fixed utility rates.
- Generous federal tax credits, including those added, extended and increased under the Inflation Reduction Act.
- Additional state and local incentives.
- Tax benefits associated with depreciation of the system.
- Higher property values and increased net operating income (NOI).
Then there are the benefits not directly tied to profits: greater power reliability, for example, especially where grid systems are less predictable. And going solar can also appeal to customers who value green business practices.
High potential, low priority
The problem, of course, is that none of these benefits are particularly urgent for a business or property owner. If an AC unit breaks, the owner has to repair or replace it. Ditto if the roof caves in.
Tomorrow’s revenue is never going to depend on whether or not you qualify for a specific tax credit.
And then we get to the real issue: financing. Up until recently, there weren’t many options for financing a small commercial solar system. Presented with the option to drop $500,000 on a new solar system – which, again, doesn’t meet any urgent need – most business owners would demur. That money could be spent on hiring new employees, purchasing new equipment, or even opening a new facility.
Which is why selling to this segment has until now been an uphill battle (“sold, not bought”). For installers, getting businesses on board for a solar installation has typically hovered around the bottom of the priority list, especially given that residential and large commercial buyers have historically been easier to convince to make the switch.
But with new financing options on the table, things are changing.
Commercial financing options mark a new era for solar
Today, SMBs have more options for financing a solar installation, including some that finance 100% of installation costs. This is a huge win for businesses: they don’t have to make a loan payment until the installation is complete and they’re already reaping its many benefits.
The main thing lacking at this point is knowledge: most business owners aren’t thinking about going solar (again: they have too many other day-to-day concerns on their mind) and certainly aren’t aware of the financial tools available to help them do so.
In fact, we’ve found that, when business owners are aware of their solar options, they’ve typically found out via word of mouth – one franchise owner might “discover” solar from another owner who recently made the transition, for example. At that point, they’re often interested in a solar system for themselves.
For installers, then, there are three keys to tapping this largely untapped market:
- Self-educating about financing options. While most SMBs can’t get a standard bank loan for solar, options like a Power Purchase Agreement (PPA), public financing programs, or private financing by a dedicated solar financing provider can work. Note, though, that PPAs most likely make a business ineligible for tax incentives and public financing options require an arduous process and seldom provide 100 percent financing.
- Finding a financing partner. Should you advise customers to go the private financing route, you’ll need to find a financing partner you can trust. Ideally, this partner can also educate you about how to structure deals with SMBs and even offer tips on how to have sales conversations with that segment.
- Educating business and property owners about solar benefits and financing. Once business owners understand what solar can offer them and know they have attractive financing options, many are eager to get on board. Again, a financing partner can offer guidance on what this step might look like.
A market ripe for a solar surge
Few segments stand to gain more from solar energy than small and mid-sized businesses. By educating this group on the many benefits of solar and helping them overcome their biggest obstacle to conversion with robust financing options, installers can finally tap this market.
But there’s no time to waste. The regulatory, macroeconomic and social environments are unprecedentedly favorable for solar. Installers who act quickly will be able to both serve this under-served market and establish themselves as leaders in this emerging space, making commercial a profitable growth channel in the years to come.
