In recent years, the drive for sustainable business practices has gained significant momentum. The U.S. Small Business Administration (SBA) recognizes the importance of these green initiatives, and are encouraging further growth through the 504 SBA Green Loan Program. This loan program provides an excellent opportunity for small businesses to invest in solar energy, aligning financial growth with environmental responsibility.
What is the 504 SBA Green Loan Program?
The 504 SBA Green Loan Program is a financial tool designed to help small businesses expand and modernize while promoting sustainability. It offers long-term, fixed-rate financing for major fixed assets such as real estate, up to $5.5M. The key feature of this program is its focus on ‘green projects’, which include energy-efficient improvements and renewable energy systems.
The Role of Solar Energy Within the Loan Program
Solar energy plays a critical role in the 504 SBA Green Loan Program, by allowing businesses to easily meet the renewable energy requirements. By installing solar panels, businesses can reduce their reliance on non-renewable energy sources, lower their utility bills, and decrease their carbon footprint.
Eligibility
In order to be eligible for the loan borrowers need to meet one of the following goals to qualify:
- Reduce energy use by at least 10%: To qualify, upgrades to a building currently occupied by the borrower must result in at least a 10% reduction in energy usage compared to historical consumption. This can be achieved through enhancements like improved lighting, insulation, HVAC systems, and other energy-consuming equipment. For borrowers purchasing or constructing a new property, the new location must be in a similar region (as determined by SBA) with comparable potential for historical energy consumption.
- Generate at least 15% renewable energy: The property must incorporate upgrades that produce at least 15% of the property’s usage with renewable energy. Solar is one of the easiest ways to meet this requirement, and also our favorite (for obvious reasons). For new construction, an energy audit would be needed to estimate the consumption of the building, as well as the required size of the solar system.
- LEED Certification: A project can qualify by being built or retrofitted to meet LEED certification standards through the completion of upgrades.
Incentives
Businesses investing in solar energy can benefit from the loan’s favorable terms, such as lower down payments and extended repayment periods, making solar projects more financially accessible. SBA loans with a renewable energy component are typically able to secure
- Enhanced Loan Capacity for SBA/CDC: The SBA’s contribution per project can reach up to $5.5 million adding an additional $500,000 per project.
- Expanded Opportunities for Cumulative Financing: Small businesses are eligible for an unlimited number of SBA 504 Green Loans, with no overall limit on the sum of loans or funding, provided each project does not exceed the $5.5 million threshold set by the SBA/CDC.
- Financial Savings: Lower energy expenditures result in significant long-term savings for businesses. Additionally, the majority of energy upgrades and related equipment may be included in the financing package.
- Tax Benefits: In addition to the 504 loan benefits, businesses can take advantage of federal tax credits grants and state incentives available for solar installations, which can be monetized quickly.
- Sustainability: By transitioning to solar energy, businesses contribute to reducing greenhouse gas emissions and reliance on fossil fuels. This not only helps combat climate change but also enhances the company’s reputation as an environmentally conscious entity.
- Market Appeal: Consumers and partners increasingly favor businesses that demonstrate a commitment to sustainability. Investing in solar energy can enhance a company’s marketability and attract eco-conscious customers.
Note: Virtue Solar does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to contitute tax, legal or accounting advice.
What small businesses can benefit from an SBA Loan + Solar?
The 504 SBA Green Loan Program provides a pathway for small businesses to invest in solar energy, combining financial benefits with environmental responsibility. If your business utilizes SBA loans, adding a solar system to your project design could yield serious benefits. Hotels, storage facilities, car washes and many franchise businesses stand to benefit from the increased lending limits and favorable terms of the SBA 504 Green Loan program.
We specialize in commercial solar for small businesses in Virginia, and can create a solar proposal for your project free of charge. Commercial solar incentives have never been better. Reach out today and we’ll see what other tax credits or grants may be available for your solar project.
