Understanding Loan Terms

Commercial Energy Financing: An Example Of Good Business Debt

21 March 2019

Stanley Simmons

Keeping your debt levels down while you build up your business is good business sense. You want plenty of savings and little in the way of bills so that your business stays financially stable even when technically you are hitting a rocky patch (as most businesses occasionally do). However, sometimes debt is good. Just as a mortgage is debt whose existence people understand -- they don't consider a mortgage to be frivolous -- so too is debt that allows you to invest in your business and create ways to save money in the future. An example of this debt is financing for energy projects, such as installing solar arrays in your company parking lot.

Paying for Itself

First, understand that this type of debt leads to utility savings. In other words, when you take on the debt and install the energy project, you end up saving money elsewhere. The financing could effectively pay for itself within a few years, depending on how much your bills shrink. Even if you're installing the project not to save money but to simply start using renewable energy, you should notice some savings anyway.

Conserving Savings for Emergencies and Lean Times

Financing also provides money for projects while allowing you to hang on to current funds. Businesses need a financial buffer, or an emergency cushion of sorts. This ensures the business can keep the lights on if there's a temporary dip in sales or other sources of income. If you pay out of pocket for the energy project, even if you have the funds, you're taking a huge chunk of emergency money and making it not available until you save it back up. Instead, get the financing and then make bigger-than-minimum payments if you want to get the loan paid back more quickly. It's a typical tactic for personal debt, and businesses can use it, too.

Improving Business Credit Ratings

If you're a fairly new business or have a not-so-stellar business credit rating, the financing could help you improve it. This financing is a business loan, and your payment record can improve your rating if you pay on time. Even if your business has a lot of cash available to pay for the energy project, you may want to get the financing just for the credit rating benefit alone.

As with any financing, ensure the payment terms and interest are acceptable to you; you don't have to take the first financing offer that comes along. Once you receive an offer that meets your needs, you'll be able to get that energy project going. Contact a lender to learn more about financing solutions for commercial energy.

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