BRIDGEWATER, N.J.–Thanks to the new solar roof on his home, there are months when Marc Sovelove gets a check from his power company instead of paying an electric bill.

For Sovelove, that's more than just a member testimonial. Sovelove is SVP-lending for Financial Resources FCU. When his home uses less electricity than what the roof generates, that extra energy flows back into the grid over its existing lines, and he gets paid for it.

With those kinds of potential member savings in mind, FRFCU has entered the solar loan market, making loans to businesses and individuals that ultimately improve borrowers' cash flow.

"We started doing these loans a year ago, first for small businesses," said Sovelove. "Now we are offering them to individual members as well."

The $400-million FRFCU has made five solar loans so far to businesses, with Sovelove saying risk is minimal. In fact, he contended that a solar loan done correctly improves an existing business loan.

"It's real estate secured, and we have the business submit a plan that details the financial benefits the investment in the roof provide. So if the loan with the business is already sound, their monthly cash flow is strong, and the loan fits within their ability to pay, we feel the credit union now has a stronger business loan."

Sovelove emphasized that while some businesses may choose to add a solar roof in an effort to go green, that alone is not a sound reason for the credit union to make the loan.

The payback on the solar investment can be quick for a business, added Sovelove, who pointed out that a local plastics manufacturer that uses significant energey expects the monthly savings to pay for its solar installation in two years. Roofs for businesses, said Sovelove, can range from $400,000 to $2 million. The solar loans the credit union makes range from seven to 15 years with the average rate 5.5% APR.

A New Kind Of Home Equity Loan

Solar loans for members, which just got underway, are actually home equity loans and are expected to range from $10,000 to $50,000. FRFCU's fixed home equity loans range from just below 4% to a slightly above 5%. Solar loans tied to a HELOC now receive a 1.99% introductory rate.

Sovelove said the member loans also help the credit union stand out in the community, not only for helping the area go green but because banks aren't making the loans.

Ken Buren, VP of business development for Trinity Solar, one of the solar roof companies with which FRFCU has partnered, said solar is the right fit for credit unions. "‘This can be a whole new niche for credit union lending. I say that because banks are not offering solar financing. These are great loans that send a great message to the membership–saving money and improving the environment."

Trinity gives credit union members a 10% discount off its regular price. The company is working with a three credit unions and has a dozen CUs in the pipeline, Buren said.

Sovelove cautioned that if the credit union gets into this area of lending with small businesses, it must be experienced underwriting business loans.

Special Underwriting Concerns

"You have to be able to look at the cash flow and figure out debt service coverage ratio. You need to underwrite this loan just like any other MBL loan. You also have to take into account how much savings there will be, the impact of the 30% federal tax credit for the roof, and also accelerated Section 179 depreciation that can be used on solar roofs."
Solar loans are expected to grow at Financial Resources, and not only because they can reduce members' electric bills by two-thirds–which is what Sovelove has experienced.

"I have two teenage kids reminding me that my generation has messed up the Earth for them," noted Sovelove. "When you take away what's humorous about that, the reality is that all previous generations have done damage to the Earth. We need to do what we can to preserve the Earth's resources and solar is the cleanest energy form we can use."

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