How Commercial Solar Lending Can Lead to a More Sustainable Future

More than six months after the collapse of Silicon Valley Bank, the banking world still feels like it's treading water. Interest rates remain high and continue to rise, the cost of bank deposits is extremely high and liquidity is low. And that means lenders – from international investment banks to regional credit unions – aren't making a lot of new loans.

Still, though many banks remain wary of new commercial lending, the most innovation-minded credit unions have spent an otherwise tight period exploring options big banks often overlook. Recent data published by Pew, for example, revealed that in 2022 credit unions lent a record $227 million through the NCUA's Payday Alternative Loan program.

This pivot toward small-scale lending is neither surprising nor a reason for concern. Rather, it's a reassuring example of how credit unions can take advantage of opportunities underutilized by larger banks to ensure and sustain success now – and in the future. Often, difficult times and necessity are the breeding grounds for opportunity.

And this strategic approach to innovation comes with precedent, too, as credit unions entered the residential solar lending market well before most larger banks and other financial institutions. Today, that attention to overlooked markets – and experience in solar financing in particular – presents an opportunity for credit unions to innovate and become market leaders in a new asset class.

Here, we'll explore how credit unions that adopt a new form of solar financing, commercial solar lending, can emerge from our current economic climate positioned as industry leaders in the last untapped segment of the solar market.

CUs Have Historically Led Solar Financing

In 2015, I worked with my co-founders at Sunlight Financial to help secure a $50 million residential solar loan program pilot with the $4.8 billion, San Jose, Calif.-based Technology Credit Union (Tech CU). What was then one of the first of its kind, quickly turned into a $500 million loan program – and later into a multi-billion-dollar program.

The Tech CU program supported a large network of high quality residential solar installers in need of financing solutions for their customers and provided an extensive selection of financial products with loan structures, repayment periods and interest rates customized to match the specific preferences of each homeowner. In addition to generating billions of dollars of high quality assets for Tech CU, it also increased credit union membership significantly.

By integrating with the technology systems of solar businesses and installers, Tech CU took an innovative approach that helped prioritize the financial and environmental interests of its members. And they were smart enough to realize the strength of the asset class before their peers, and in doing so, became a market leader in residential solar loans and earned outsized returns.

Today, the credit unions that adopt similar platforms to enable small and mid-sized businesses to gain the benefits Tech CU brought to homeowners have the potential to realize similar market leadership positions and outsized gains.

Next, let's look at this idea a bit more in depth.

CUs Can Help Solve Solar's Limited Financing Options

Recent market growth in U.S. solar deployment has been primarily driven by residential customers and larger businesses. The reason is simple: They have the best available financing options. Solar is a product with an expensive upfront capital cost, and strong predictable cash flows over time. As a result, market growth is predicated on good financing solutions to bridge the up-front cost with the 20-plus-year cash flow stream a solar system generates.

Without widely available commercial loan products, property owners must often navigate a particularly thorny world of financing and tax rebates on their own. For solar to reach its full potential, the customer base must expand. Businesses without the bandwidth to navigate solar's current financing options – or the cash to pay for equipment and installation up front – need a solution. And the vast majority of property owners in the U.S. are in that situation.

Enter credit unions. By beginning to finance solar projects now, credit unions can pave the way as leaders who offer solar customers a product specifically made for the space.

Offering loans over a term of, say, 10, 15 or 20 years (like residential solar) can help businesses secure fixed monthly payments that are lower than the monthly energy savings generated by their solar system. At the same time, these new, longer-term products offer credit unions attractive yields and risk profiles relative to their existing portfolios and provide new customer relationships that can be cross-sold.

The Opportunity to Build Bridges Between Members and Partners

Just as solar financing presents credit unions with the opportunity to grow their membership base, financing solar projects also makes it possible for credit unions to build bridges between those new members and their existing partners.

Credit unions that found previous success in residential solar lending, for example, can help the residential installers they've worked with for years expand into the commercial market. Likewise, they can ensure that their new members expeditiously realize the benefits of their solar systems by having them installed by reputable partners. Oftentimes, the consumer member also owns commercial property and could be a commercial borrower as well.

Key to enabling this transformation is credit unions' embrace of their role as not just industry leaders or lenders, but also as facilitators of the many parties involved in the solar energy revolution.

Solar Lending Offers Benefits for Credit Unions Across the U.S.

Depending on where you are in the US, you may worry that adopting solar energy will be a hard sell. But if you fear significant benefits aren't available in your region, there's good news. The reality is that the economic advantages of solar power are attainable in all 50 states. Commercial solar is a great deal everywhere.

The potential benefits are considerable – they enable better control over monthly and long-term energy expenses in the states where traditional energy is most expensive (such as New York), to the most sunny regions of the country (such as the Southwest). This positions solar technology as a distinctive opportunity for businesses and property owners seeking heightened stability and improved cash flow, especially amid persistently uncertain economic circumstances.

Lastly – though certainly not least – the environmental benefits of solar power are entirely location neutral. Credit unions that embrace solar lending not only take a step toward surer financial footing in the years to come, but also contribute positively toward a greener future.