Overview of solar financing
America is in the midst of a green energy revolution. Every day, more and more businesses and consumers are opting for clean, efficient solar power as their electricity provider of choice. As a result, solar panel installation is booming. However, while solar panel installers (often small, independently owned contractors) may know a lot about putting solar panels on a rooftop, they may not be as knowledgeable as they should about financing their customers’ purchases, particularly when it comes to securing those loans.
Solar panels aren’t cheap. Frequently purchases have to be financed or leases are made. Solar panel installers differ from most businesses in that the money they get to start their businesses and provide loans to customers comes not from traditional banks, but from federal, state, and local governments and/or investors. For most small businesses, a bank might help show the new company the tricks of the trade when it comes to lending and leasing, but solar panel installers don’t always get that free and valuable education as they don’t often deal with banks. So they’re left to figure it out on their own. That can cause big problems down the road in the event of future borrower difficulties.
Today we’re going to examine what properly securing assets and loans (via a UCC filing) does and some important reasons why you should do so if you are a solar panel company. Failure to secure your assets could quickly turn a bright business forecast into a cloudy one.
Understanding a secured loan
For most solar panel companies, there is a great confusion about the difference between a UCC (Uniform Commercial Code) filing and a mechanic’s lien. At the average solar panel installation company, the president is often one of the installers. He or she knows a great deal about how the equipment works and how to best place it on a house or business. But a UCC filing may be a foreign concept.
When a customer defaults on a loan for their equipment, the solar panel company president may think he or she can just repossess it, as a mechanic would do. It’s important for them to know that’s not the case. That’s the wrong kind of secured asset. They need a UCC filing, which is not a judgment, but a notice.
So what does a UCC filing do for the solar panel installer? Two things: first it helps them meet contractual agreements with their company’s investors or financiers (be sure to read the fine print!), and it helps them answer the question, “What do I need to do to collect on my accounts receivable?” Without a UCC filing, there is no certainty or trackability to the lending/leasing process. Which naturally leads us to the most important part of this article...
Why perform a UCC filing?
Here are three very good reasons to perform a secured UCC filing if you are a solar panel installation company (or for any business at all, when you get down to it).
As mentioned above, it adds certainty and trackability. More to the point, it makes it clear where you stand versus other secured parties in payoff priority. If your assets are not secured via a proper UCC filing, should the borrower declare bankruptcy, secured creditors (those with UCC filings) come first in line. Everyone else is left to fight for the remaining scraps, if there are any. With a filing in place, you’ll have a measure of confidence you’ll get something in the event of borrower difficulty, which is more than an unsecured creditor might get.
It serves as notice to other secured parties you have financed something for this customer.
Finally, it can make your company more attractive to investors or financiers because you have tangible evidence of your receivables instead of having a bunch of IOUs stuffed in a drawer or a “gentleman’s agreement” that exists only in a handshake and smile.