Increase cash flow using “other peoples money” to fund your efficiency project
Tens of thousands of dollars are being wasted every year through inefficient lighting systems.
Despite this demonstrable truth, we are often faced with reluctance when it comes to discussing funding for LED upgrade projects. Common objections we hear include, “we don’t have the budget”, “we can’t risk spending capital right now” or something along the lines of, “we don’t finance.”
For many capital expenditures, these arguments may make total sense and the circumstances of every business are obviously unique, however, when talking about energy-efficiency projects, specifically those that guarantee long-term cash savings (in the form of reduced energy use, electric spend, and maintenance costs) the math is stacked in favor of approving these projects.
Particularly now (as we write this during the COVID-19 outbreak) budgets are tight and expenditures are under additional scrutiny, we believe this environment makes the case for an energy-efficiency project even stronger and the argument to use “other people’s money” to fund these projects more compelling.
It’s an unfortunate reality that many businesses are focused on just staying operationally viable. To be operationally viable many facility managers, COOs, and CFOs consider it more attractive to keep their cash (and their approved credit lines) to ensure they’re ready to pivot for the unknown. What is often overlooked is that lost savings is real cash businesses and facility managers could have kept and the longer you wait the more cash you burn.
Having a healthy amount of liquid cash can give your business a competitive advantage in this current climate and is a compelling reason to use legitimate funding options to execute on energy-efficiency projects that will further increase cash-flow.
If you see the value in improving the operational performance of your space but would rather keep your cash there are many ways to fund your energy-efficiency and lighting projects.
Navigating the options can be daunting so Jay Davis pulled together some pros and cons to 5 common funding options for energy projects, we’ve summarized these below:
Finance (get a loan):
If you have a good relationship with your bank it makes sense to go this
route to fund your project, however, finances can get messy with variable rates, tons of paperwork and loopholes to jump through. If you have the resources to work on this it may be worth investigating.
Operating/ Capital lease (lease it):
Operating and capital leases can be a straight-forward option with quick
approval times for amounts under $250k. There are also options where you can lease-to-own with a $1 buyout for example. This option is has some limited funding amounts and thus may not make sense for multi-site portfolio projects.
Something to note: recent changes to the FASB (financial
accounting standards board) also mean that this type of lease is now “on
balance sheet” and thus projects are listed as liabilities.
Rental Service Agreement (rent it):
This is a great option if your priority is to keep monthly payments low and reduce the liability or service and maintenance. This option also ensures your project stays “off-balance sheet”. The downside to this type of funding is incurring ongoing payments, while you never end up owning the assets (lighting fixtures, motors etc).
On-Bill financing (OBF/ utility funded):
This offering is a fantastic option but only some utilities in select
locations offer it. In this scenario your past utility bill payment is used as
a history of payment and underwriting is a swift process. You pay a portion of the funding for a set/ agreed term on your electric bill. This portion of the funding you pay is almost always covered by the savings generated by the efficiency project making these projects a brilliant net neutral funding option.
OBF is also considered “off balance sheet” and many available programs are zero interest. A good example of an OBF program includes PG&Es
Energy efficiency financing.
In addition to limited availability this option is most suitable for businesses
with one or just a few sites in a participating region.
This relatively new concept, is most suitable to large portfolios and can
most basically be described as a “pay-as-you-save” system that covers the
upfront capital costs of your energy project. The vendor assumes the performance risk of the new lighting system and you pay for the system off the energy savings
We can help you navigate the options and put you in touch with reputable lenders that are familiar with energy-efficiency projects.