Tips on how to get your solar project financed

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Alliant triples solar capacity in Wisconsin, Four Twelve unveils utility-scale facility in Pennsylvania

I am a community solar lender. Here's what I'm looking for.

By Michael Jones | VP of lending business development | RSF Social Finance

If you develop small- to medium-size community solar projects, chances are you've struggled to find the right financing.

Maybe equity doesn't meet all your needs. Or, you're holding onto the project for the medium or long term, and you want to collect cash flow. In either case, debt is your best bet — but big banks decline deals they deem too small, and many community banks shy away from funding solar because they're not familiar with the economics of the sector.

The solution could lie with funders that sit between those two poles: nonbank lenders such as impact investment funds and mission-focused banks like NYCEEC and Connecticut Green Bank. As someone who works in this niche, I'm here to tell you what appeals to us and how to determine whether we're a fit for you.

Mining the middle ground

Many lenders in this space are mission focused, meaning they are primarily interested in financing projects that expand access to solar in low- to moderate-income (LMI) communities or are focused on reducing a community's carbon footprint. They want to know who is benefiting from the installation and how it will create meaningful impact.

Loan sizes typically vary from $500,000 to $3 million. Our funding sweet spot lies in the $1 million to $6 million range, and we are most attracted to deals that offer opportunities for ongoing collaboration. That is especially important if you're developing smaller projects. It makes more sense for us to expend the time and resources required to underwrite, approve and document each deal we commit to if we can build a fruitful long-term relationship with the developer. It helps if your project is in a state that has invested in creating markets for solar development — California, Colorado, Massachusetts and New Jersey are a few examples.

To boost your chances of success, keep your capital structure as simple as possible and ensure that your cash flow analysis makes sense. We prefer to be your only debt financier — and most others will too — but we'll work with a tax equity investor or directly with the developer as the equity source. If you're looking to bring in other investors or private grantors, that could complicate the structure. We also focus on projects with cash flow projections that demonstrate the ability to service the proposed debt with a reasonable cushion.

In addition, it's essential to have your offtaker or power purchaser nailed down. Keep in mind that your offtaker's strength can be a factor in securing financing: It's easier to underwrite a deal if your purchaser is a large, established corporation than if it is a new or small organization. If you have a community solar project, lenders will want to know you've hired an experienced administrator who can handle the added complexity.

Overall, you should also be able to demonstrate that you're knowledgeable, organized and trustworthy by identifying and explaining each of your project's components. Your project should be fully permitted and financially viable; your partner relationships should be strong and clearly defined; and your project plan should accurately account for as many costs as possible.