Navigating Risk and Opportunity in Solar Lending
The solar industry is evolving fast. For lenders, investors & credit unions, understanding how solar lending and financing impact the bottom line has never been more important.
In our latest webinar, Shareholders Al Reis and Matt Young were joined by industry expert Matt Myers, president and CEO of Goal Solutions, for a deep dive on how residential solar contracts are structured, how they perform in today’s market and what lenders need to know to protect themselves from origination through collections.
In the session, our experts shined a light on:
- How solar contracts are structured — and how those structures influence the path from origination to collections
- Key considerations for portfolio performance and adapting to a changing marketplace
- Documentation best practices that help protect lender interests and streamline processes
Here’s an overview of the top questions answered during the webinar — and what lenders/creditors should take away from the dynamic conversation!
Q: Why has residential solar become an attractive lending asset?
Residential solar lending occupies a unique space in consumer finance because it can generate a positive return on investment for borrowers, while also delivering strong performance for lenders.
Unlike traditional unsecured installment loans, solar loans benefit from what’s called a “substitution effect.” If a borrower ceases payment on a solar loan, the system can be shut off, pushing the homeowner back onto utility power that is often more expensive than the solar payment. As a result, solar obligations tend to rank higher in a borrower’s payment priorities than many other consumer debts.
Furthermore, solar borrowers are typically homeowners with strong credit profiles, solid repayment histories, and financial stability. These characteristics can support low volatility across well underwritten portfolios.
Q: How do solar loans perform compared to other consumer credit products?
Residential solar loans have historically performed well when compared to other consumer credit categories. They often sit behind essentials like cell phone bills, mortgages, and auto loans, but are ahead of many unsecured obligations. Even as consumer credit pressure has increased more broadly, solar portfolios have generally maintained lower delinquency rates than credit cards and auto loans.
Longer loan terms, often extending 10 to 25 years, also help keep monthly payments manageable and aligned with expected energy savings.
Q: What risks should lenders be paying close attention to?
A major area of risk is related to the sales and marketing practices of solar installers. Increased regulatory scrutiny has focused on dealer fees, exaggerated savings claims, and representations related to tax credits. Under the Federal Trade Commission’s (FTC) Holder in Due Course Rule, lenders may be subject to the same claims and defenses a borrower could assert against the installer, making installer vetting and contract structure very important.
Collateral recovery is another key topic. Although solar loans are often described as secured, the webinar panel noted that the recoverable value of installed solar equipment is limited once removal costs and legal expenses are factored in. As a result, lenders cannot rely on collateral alone and must instead focus on upfront underwriting, documentation, and borrower quality.
Q: Why is documentation critical in solar lending?
Documentation sits at the heart of solar lending risk management. Errors in filing, or failure to file altogether, can leave lenders effectively unsecured, even when loans were intended to be collateralized.
For indirect lending relationships, solid third-party agreements are essential. Agreements should clearly establish lender control over loan approvals, require compliant loan documents, include mandatory FTC Holder Rule language, and contain buyback and indemnification provisions to address installer misconduct or consumer claims.
Q: How does collections strategy differ for solar loans?
The recovery process looks a bit different for solar lending. Since solar systems can be shut off, servicers are often able to engage borrowers earlier in the delinquency cycle. Notices of potential shutoff frequently prompt borrower outreach and create opportunities for education, especially around the financial trade-off of returning to higher-cost utility power.
With that said, solar shutoff is only one tool among many others. It’s not a substitute for compliance education, clear contracts and strong servicing practices.
Q: What’s next for residential solar lending?
Despite policy changes and industry headwinds, there’s a positive long term outlook for residential solar.
With market maturity comes better sales practices, smarter loan structures tied to rising utility costs, and ongoing liquidity through whole loan sales and securitizations. For institutions willing to pair thoughtful underwriting with strong legal and operational standards and practices, residential solar remains high-performing opportunity.
Final thoughts
Final thoughts
As our recent webinar made crystal clear, success in the solar lending space results from balancing innovation with rigor & partnering with experienced legal and servicing professionals who know how to navigate this fast evolving market.
For questions on this topic or if you want to learn more about our consumer collections or credit union representation solutions, don’t hesitate to contact Al or Matt today.
This blog is not a solicitation for business, and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.
