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Options for Financing Lighting Upgrade Projects

Convincing a building owner to sign off on a lighting upgrade project can be a difficult task. Many times, tight cash flow situations and a lack of capital budget stall or kill these projects from the onset. But financing options can help you close the sale and push these projects to completion.

In one of the speaker sessions this afternoon at Lightfair International, Jeremy Epstein, HBC Energy Capital, shared three key lighting financing instruments in use today: equipment leasing, property assessed clean energy (PACE), and lighting as a service. He noted the value proposition for these types of projects was more than just energy cost savings. The customer can get brand new lighting equipment installed in their building with no capital outlay, improve the value of their property, and put more money in their pocket each month by taking advantage of one of these financing instruments.

Equipment leasing is the most traditional form of financing and typically has a term duration of one to five years. This option features limited paperwork and offers fast approval and closing times. Most projects qualify and the owner typically doesn’t have to offer up collateral. However, this option offers no energy savings guarantee for the customer, terms are limited, and the financing amount appears as debt on their balance sheet.

The property assessed clean energy (PACE) method is tied to the building. The benefits of this financing option include: low payments, as the terms are >30 years; the lighting project can be bundled with other capital upgrades; it’s transferable upon sale of the property; and it’s off the balance sheet. Unfortunately, this financing option has a longer application, approval and closing process and requires consent of the mortgage holder. In addition, this option isn’t available everywhere and appears as an additional line item on the owner’s property tax bill. In addition, if the property is sold some buyers require the loan to be paid off prior to closing.

The third financing option, lighting as a service, is projected to grow rapidly over the next five to 10 years. Epstein noted this option is like other subscription models like Netflix, Spotify and Salesforce. In the lighting world, a developer/contractor designs, finances, installs, maintains and owns the lighting system at a customer’s facility. In turn, the customer pays a monthly rate for the equipment that is often guaranteed to be less than the monthly energy savings. This offers the customer guaranteed cash flows on Day 1 and keeps the project off their balance sheet and off their credit. However, these projects can require more set-up time and the transactions can be complex.

Epstein closed his presentation by offering his top tips on the lighting project financing front.

  1. Financing can relieve customer stress associated with the sale
  2. Present financing options to your customers early and often
  3. Don’t profile your customers
  4. Remember to promote maintenance cost savings
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