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Loans for Solar Systems: A Quick Guide to Solar Panel Financing

Updated: 3 days ago

Solar panel financing

Many home and business owners want to install solar panels, but the upfront cost gets in the way. Often potential customers just don’t have enough savings to cover the expense. Even after applying the federal solar tax credit, many people need loans for solar systems. The good news is that there are a variety of solar panel financing options available with attractive interest rates that require no down payment.

Depending on the cost savings from the solar energy system and the loan payments, customers may start saving right away, even after subtracting the loan payment. Understanding the loans for solar systems available to potential customers is critical for turning leads into sales and delivering excellent customer service.

What Is Solar Panel Financing?

Solar loans let homeowners install a solar power system with no money down, so your customers will not need to exhaust their savings. Unlike a power purchase agreement (PPA) or solar panel lease, your PV customers will own the solar energy system. In addition, some financial institutions or utility companies offer loans catered explicitly to renewable energy systems, and other more general loan programs may apply, too.

Solar Loan Companies

Some financing programs are designed for home improvement loans, whereas others are specific to solar energy projects. Here are some of the leading solar financing companies available for residential projects:

  • Sungage Financial offers loans for residential solar systems and has terms of up to 25 years. It has been praised for its excellent customer service and the lowest monthly payments.

  • Dividend Finance offers solar loans with competitive interest rates and flexible terms to help homeowners finance their solar energy systems.

  • Mosaic provides solar loans that allow homeowners to go solar with no upfront costs and offers various rate options, including fixed and adjustable-rate loans.

  • Loanpal offers solar financing solutions with streamlined processes, low monthly payments, and competitive interest rates to make solar installations more affordable.

  • Sunlight Financial provides solar loans that allow homeowners to own their solar energy systems with low fixed interest rates and flexible repayment terms.

  • EnerBank USA specializes in home improvement loans, including solar panel loans, offering flexible payment options and competitive interest rates.

Loans For Solar Systems Through Credit Unions

As a solar installer, you can explore partnerships with local credit unions or local banks to offer financing for solar panel installations. This collaboration enables you to present customers with accessible and affordable solar financing solutions tailored to their needs.

By working with credit unions, you can create specific financing packages and solar loan programs, making installations financially viable for a wider range of individuals. This approach allows you to expand your customer base and contribute to the broader adoption of solar power.

Home Equity Lines of Credit

Leveraging a Home Equity Line of Credit (HELOC) can be a savvy choice for financing solar projects. With typically lower interest rates than unsecured loans, HELOCs offer a cost-effective avenue for homeowners looking to invest in solar energy. Also, the interest paid on a HELOC might be tax-deductible, providing an additional financial incentive.

However, solar customers should exercise caution and thoroughly evaluate the risks associated with using their homes as collateral. While HELOCs offer advantages, they also pose potential risks to home equity and may lead to foreclosure if they fail to make their payments. Also, a HELOC may require a home appraisal for solar panel financing.

Government-backed Loans for Solar Systems

Some potential solar customers may be eligible for loan programs.

FHA Title I Property Improvement Loan

The FHA Title I Property Improvement Loan is a government-backed loan program aimed at financing home improvements, including energy-efficient upgrades such as solar panel installations. Borrowers can use this loan to fund various property improvements, making it a viable option for financing solar projects. The Title I loan program offers flexibility in terms of loan amounts and repayment periods, providing homeowners with an accessible means of funding solar panel installations and enhancing the energy efficiency of their homes.

PACE Financing for Solar

Property Assessed Clean Energy Programs (PACE) are a popular option for home or business owners in some areas. The program is for paying the upfront cost of qualified home energy-efficiency upgrades. Unlike most home improvement loans, the PACE program is associated with the property itself and not the individual. These programs allow solar homeowners to pay the cost of the solar installation over years, often at a low-interest rate.

State Loans for Solar Systems

Some states in the U.S. offer loan programs specifically designed to support energy efficiency and home improvement projects. These programs may provide low-interest loans, favorable terms, or other financial incentives to encourage homeowners to invest in energy-efficient upgrades, including solar panel installations.

Solar Loan Rates & Terms

The rates and terms of solar loans vary by the financial institution and the type of financing, and depend on your client’s financial standing. Loans with lower interest rates and fees result in greater savings to your customers. Also, loans with fixed interest rates are more predictable, offering peace of mind.

Your customers often want to avoid loans with prepayment penalties and variable interest rates. The longer the solar financing term, the lower the monthly payments. However, solar loans with longer terms can increase the total interest paid on loans over time.

It is helpful to look for a solar loan option that results in your customer being cash-flow neutral or even positive when possible. This happens when the loan payments are less than the monthly electricity bill savings with net metering. Therefore, look for solar energy loan options with the lowest rates and fees.

Secured Vs. Unsecured Loans For Solar Systems

There are two primary types of solar loans: secured and unsecured. A secured loan requires collateral to “secure” the loan and lower risk to the lender in case you default. Mortgages and auto loans are common secured loans. However, if your customer defaults on a mortgage, auto, or other secured solar loan, the institution could seize the collateral and sell it to pay off the loan.

Because secured solar loans tend to use the home as collateral, they often have lower interest rates than other loan options, and sometimes the interest is tax-deductible. Secured loans can take a bit longer to process because banks may need to assess the value of the home, which can involve getting an appraisal.

Another option for your customers is an unsecured loan, like student loans, credit cards, and personal loans. These solar panel financing options do not use an asset as collateral and function similarly to a credit card. Unfortunately, unsecured solar loans usually have higher interest rates, and the interest is not tax-deductible. As a result, these loans tend to be less desirable to potential customers.

What’s Covered Under A Solar Loan?

Often, solar loans cover the entire cost of a solar energy system, including solar PV panels, inverters or microinverters, power optimizers, racking systems, and wiring. In addition to the solar equipment, labor, and permitting costs are also included.

Can You Finance A Solar Battery Installation Too?

Solar batteries are becoming a popular option for residential solar panel systems, but the upfront cost can deter some customers. Thankfully, solar loans commonly include the cost of a solar storage battery, such as the Tesla Powerwall or the Enphase Encharge. Often, solar loans are also a good option for households that already have solar and want to add battery storage.

In some states and utility territories, there are also battery incentives or rebates available. Also, the federal solar tax credit includes batteries for solar energy systems, reducing the net system cost.

Where To Find Solar Panel Financing

If you partner with a financial institution or utility company to offer solar loans, make sure you are located in their service area. Unfortunately, some solar loan programs are only available in certain states. Credit unions might be a good option, but some may have eligibility criteria, such as residency requirements. National Banks often have both secured and unsecured loan options with various rates and terms.

Look for the loan options with the best terms for your customers. For example, many homeowners appreciate it when loan interest is tax-deductible and has a simple approval process.

Establishing a Financing Program With a Solar Loan Company

Establishing a financing program for your solar customers as a solar installer can help boost sales and make solar power accessible to more people. It involves several steps:

  1. Research Solar Financing Options: Explore various financing options such as loans with credit unions, banks, and financial institutions, solar leases, or power purchase agreements. Understand the requirements and benefits of each.

  2. Partner with Financial Institutions: Collaborate with local banks, credit unions, or financial institutions to create financing partnerships. Discuss terms, interest rates, and eligibility criteria.

  3. Educate Yourself: Read educational materials or attend workshops to help you understand the financing process, so you can improve the customer experience.

  4. Create Transparent Packages: Develop clear and transparent financing packages for your customers. Clearly outline terms, interest rates, repayment schedules, down payments, associated fees, and credit requirements.

  5. Compliance and Legalities: Ensure compliance with local regulations and financial laws. Consult legal professionals to draft contracts and agreements that protect both you and the customer, especially for solar leases or PPAs.

  6. Promote Solar Financing Options: Market your financing program to potential customers. Highlight the benefits, such as $0 down solar options and long-term electricity bill savings.

  7. Streamline Application Process: Simplify the application and approval process. A user-friendly and efficient process will encourage customers to consider financing.

  8. Provide Excellent Customer Service: Ensure that your team is knowledgeable and ready to assist you with any questions or concerns regarding the financing program. Positive customer experiences lead to better word-of-mouth promotion.

  9. Regularly Review and Update: Periodically review your financing program, considering market trends and customer feedback. Make adjustments or improvements as necessary to stay competitive.

How To Apply For A Loan For A Solar System

Some solar installers with relationships with financial institutions will help walk their customers through the application process. Commonly, applying for a solar loan requires a credit check and filling out an application. In some cases, the lender offers a simple application process and rapid approval.

However, some secured loans will take longer, especially if a home appraisal is needed. Unfortunately, getting an appraisal can also increase the loan fees.

Alternatives Solar Panel Financing Options

If there are local or state solar energy incentives available in your service area, make sure you are familiar with them. Some utility companies offer incentives, such as rebates for installing batteries. Several states offer state tax credits, reducing the net cost of going solar.

Be aware of all the regional programs and stay current on these incentives, as they can change over time. For example, sometimes programs lapse when the funds are exhausted. If customers think they have a rebate coming and then don’t, it can be very disappointing.

Solar Leases or Power Purchase Agreements

One alternative to a solar loan is a solar lease or purchase power agreement (PPA). With a solar lease, the homeowner pays to lease the solar panels but doesn’t own them. For solar PPAs, the homeowner pays for the electricity their solar panels produce, and a third party owns the solar system.

Although solar financing has become more popular in recent years, a solar lease or PPA might be a better option for some customers, especially if they can’t take advantage of the federal solar tax credit. For this reason, some solar companies offer solar leases and PPAs, especially if they have access to enough capital.

FAQs About Loans for Solar Systems

Read on to learn answers to common questions about solar panel financing.

Who Qualifies For Solar Panel Financing?

The requirements for solar loans vary by the programs themselves. However, solar panel loans commonly involve conducting a credit check and require a minimum credit score to qualify. Typically, customers will poor or fair credit scores do not get approved, while applicants with good and excellent credit do qualify.

If you have a customer with a low credit score, there are ways to increase this score over time. Many solar installers partner with a specific loan program to help streamline the process for potential customers.

What is a PPA for Solar Financing?

A Solar Power Purchase Agreement is a contractual arrangement between a solar developer or installer and a customer, typically a business or homeowner. In a PPA, a solar company installs and maintains solar panels on the customer's property, and the customer agrees to purchase the electricity from the solar power system at a predetermined rate over a specified period, often 10 to 25 years.

What credit score is needed for residential solar financing?

The minimum credit score required for solar financing can vary depending on the financing option and the lending institution. Generally, for unsecured loans or power purchase agreements (PPAs), a credit score of around 650 or higher may be acceptable. However, secured loans or home equity financing may have lower credit score requirements, potentially in the range of 580 to 620.

Knowing Solar Panel Financing Options Can Help Clients

Because the upfront investment is often the largest obstacle to closing, understanding solar panel financing options is critical. Sometimes, solar projects are cash-flow neutral or positive due to low interest rates, low fees, and favorable loan terms. Finding desirable solar loan options for your potential customers helps provide a better customer experience while potentially boosting sales.

Permitting is another complex area to navigate when it comes to solar installations. GreenLancer helps solar companies scale up their businesses with quality solar permit design and engineering services. Complete the form below to learn more or create a free account.


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