The green movement is currently trendy for good reason. Green projects can help increase energy efficiency, reduce fuel costs, help the environment, meet government regulations and generate a positive reputation for your business, among other benefits. However, green improvements cost money. Fortunately, there are programs and financing options available to assist you.
Local and national governments have established grants, tax relief and low-cost lending programs, such as the Small Grants Programme, to encourage green projects. This grant is available for projects that provide environmental and livelihood benefits to communities, particularly communities that are poor and vulnerable. A good starting place for your project finance research may be to investigate what sort of grants, tax credits or government financing your project qualifies for.
While investigating financing specifically geared towards green projects is certainly worthwhile, you probably will also want to investigate traditional financing options, such as small business loans. If you decide to seek traditional financing, you will probably want to prepare detailed reports on how your green project will improve your bottom line. If you can demonstrate that the cost savings and improvements in efficiency will generate more profits, it will be easier to convince potential lenders that you’ll be able to repay your loan.
Energy Performance Contracting
Many energy companies offer programs where you can lease green equipment from them and pay for the lease out of the benefits of your green project. Typically, the energy company will arrange the financing and you will pay them by sharing your cost savings over a specified period. Once that time period is up, the remaining cost savings from your project are yours to do with as you please.
If you have the capital on hand to make payments but lack the upfront costs for a traditional loan, leasing equipment or buildings could be a good option. Leases work similarly to rentals, in that generally you will agree to pay a monthly fee for a set amount of time. At the end of the lease, the property may return to the lessor, or you may be allowed to purchase it outright at a reduced rate. Some leases do require an upfront payment, but the amount is usually much lower than what would be required for a down payment on a loan.
If your new project will benefit your local community in some way or produce an exciting or particularly beneficial product, consider crowdsourcing as an option. If you can get people excited about the benefits of your project, they may be willing to invest in it. You can further encourage investment by offering incentives to those who invest early on, invest large amounts or agree to spread the word about your project. Before you make any crowdsourcing plans, it is probably a good idea to make sure your crowdsourcing plan complies with laws in your area.
If traditional banks aren’t a good option for you, you might consider an online lender. Online lenders often offer easier and faster application processes. They can also be good options for people who have sub-prime credit or little credit history.
If you don’t want to or can’t borrow the money, you might consider seeking out investors. Much like with attempting to secure a traditional loan, you’ll need to prepare detailed reports about your business, your project, and your financial health. Potential investors will want to see that your company will be around for the long haul and that their investment will generate some sort of return. You’ll also need to pay attention to the regulatory environment in your location to make sure you comply with all applicable laws.
Another potential option to raise funds via investment is bonds. Bonds have a set return rate and are treated as debt on your balance sheet. Investors purchase the bonds for a pre-determined price, providing you with capital to fund your project and then you pay the investors the agreed-upon return rate for the life of the bond.
Some lenders offer loans specifically for green projects. One such example is the Green Loans Program at GBTI Bank. Through this program, businesses can obtain loans to fund projects related to solar energy, water treatment, hybrid motor vehicles, energy-saving appliances, wind, and hand-powered projects, air filters and low carbon economic investments. Lending programs offered by banks specifically focusing on funding green projects may be easier to qualify for than traditional loans.
Choosing one or more of these nine financing options can help you get your green project off the ground. The most obvious benefit is securing the necessary funds to see your project to completion. However, you’ll likely find that going through the process of documenting the potential costs and benefits of your project will help you refine your project and make needed improvements that will bring both you and your funding sources a better return.