A version of this blog post originally appeared on SnapCount’s website.
You’ve carefully assessed your potential client’s needs and have spent hours putting together a comprehensive proposal that, if agreed upon, will be the first step on the path of transforming that client’s lighting efficiency.
It should be an easy win. But right now, even the most well thought out and desperately needed projects are met with hesitation.
Cash flow is on everybody’s mind. And if your clients are worried about their cash flow, your proposals may get shelved or even turned down completely.
One way to solve this problem is to offer financing as part of your proposal, allowing the client to minimize the cash flow impact of your project by spreading payments out over a fixed period, at an affordable interest rate.
Let’s Explore How Retrofit Financing Works
Before diving into how retrofit financing works, it is important to clarify the meaning of some commonly used terms:
- Residual value is the estimated value of an asset at the end of its financing term.
- Balloon payment is an outstanding lump sum that is due at the end of a loan or leasing period, instead of the full debt being completely paid off throughout its sequence of regular payments.
- Lessee is the company receiving the lease.
- Lessor is the company or organization providing the lease.
In general, when companies get financing for their retrofit project, they typically pursue one of two avenues: debt financing or lease financing.
- Debt financing is a loan or line of credit that an organization may get directly from a bank. This type of financing is relatively straightforward but may be difficult to obtain during periods of volatility.
- Lease financing is an option that retrofit companies can offer to clients. Typically, retrofit lease finance is implemented as a capital lease.