Increase cash flow using “other peoples money” to fund your efficiency project
[Last updated 6/15/21]
Tens of thousands of dollars are being wasted every year through inefficient lighting systems.
Despite this demonstrable truth, we are often faced with 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 of course, the circumstances of every business are unique – however, when talking about energy-efficiency projects, specifically those that include 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 an even stronger case to implement your energy-efficiency project while he argument to use “other people’s money” to fund these projects becomes even 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 that businesses and facility managers could have kept. 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 we’ve summarized some pros and cons to 5 common funding options for your energy projects:
[Updated 6/15/2021] Due to the popularity and demand for financing we at PEC have developed PEC Capital. Our 0% funding option makes funding your project simple, reducing wasted time, paperwork, and resource.
If you don’t wish to use PEC Capital and have a good relationship with your bank it may make sense to go this route to fund your project.
Operating/ Capital lease (lease it):
Operating and capital leases can be a straight-forward option with quick
approval times. There are also options where you can lease-to-own with a $1 buyout for example. This option 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 suited to large portfolios and can
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 with the energy savings directly. These Energy Savings generally included a performance guarantee. The Energy As a Service provider is paid back on their investment by the energy savings yielded from the project. This model provides a true “Off Balance Sheet” Service contract that helps businesses implement LED lighting rollouts at scale.
We can help you navigate the options and put you in touch with reputable lenders that are familiar with energy-efficiency projects.