Cash, finance, or lease? A solar installer's guide to matching a homeowner with the best option

Financing is the first step in the solar customer journey
Author : 
June 2, 2023

We were in a meeting the other day talking about the issue of homeowner payment options, and it reminded us of a story from a solar installer in our network, Eddie. 

Eddie had been working with an excited solar customer — but when the homeowner got to the financing stage, she started skipping his calls and ghosting his emails.  After finally connecting with her, Eddie discovered that the homeowner had been receiving conflicting and confusing advice from other folks in her life:  One friend said that purchasing the panels outright was the best way to go, another said that leasing the panels was the smarter choice.  The customer didn't know who to believe, and her excitement about going solar faded to indecision.  

Luckily, the story has a happy ending.  Since our friend Eddie had educated himself on the different purchasing options, he was able to give her direction about each option and which one might be best in her financial situation before suggesting she talk to her accountant to make a final decision.  The homeowner was so grateful, and trusted Eddie so much after his advice, that she picked him above his cheaper solar installer competitors.

With rising interest rates, PPAs and leases are becoming more attractive and many solar businesses are adding them alongside cash and loan options.  This is why, when it comes to a sales team's ability to listen to the customer can make all the difference.  Although knowing all sides of the equation is a must, being able to work with the customer and determine the best route for their individual situation often takes a deft touch.  Solar installers who can be forthright without being invasive can build trust, cultivate a positive relationship, and ultimately encourage prospective customers to move forward on solid footing.

So how does a sales team help homeowners make the right decision?  By understanding the benefits of each path, analyzing the homeowner’s individual situation, and providing a way for customers to track solar progress on their own, installers can work towards a solution that is best for the homeowner.  Beyond simply generating a sale in the short term, discussing the financial reality of a PV system is an excellent opportunity to lay the foundation for a positive customer experience.  

Below we characterize the 3 different profiles of solar customers: Cash customer, Loan customer, or Lease/PPA customer and give you tips for how to identify each one.

Tip: Understand your customer’s financial reality

To best serve a homeowner considering solar, understanding motivations and financial circumstances is essential.  This requires a careful balance and some tact from the sales team.   After all, the goal of a sales team is to determine basic information (like income and credit score) while respecting a homeowner's privacy.  Homeowners typically understand they must provide some financial details to move forward, but they may also require some careful prodding.  

Sales reps should remain positive and avoid making assumptions while trying to determine a prospective customer's financial outlook.  Remember, every home has a unique financial picture that often fluctuates from year to year, or even from month to month.  Your sales team should find the financing option that the customer wants, not the one that your business prefers. 

As you seek to understand your homeowner’s finances, it can be helpful to stress the importance of debt-to-income ratio or credit score for solar loan-seekers.  By explaining that many solar loan types require a 45% debt-to-income ratio or at least a 650 credit score, an installer can work with a homeowner to determine what options are appropriate.  The goal here is to educate the homeowner, determine which paths are possible, and provide a realistic recommendation based on the provided financial information.  Once you learn more about their goals and financial situation, you may be able to identify them as one of the following financing customer archetypes.

RELATED: The top 7 metrics for measuring the solar customer experience and homeowner satisfaction

Profile 1: The cash solar customer 

Depending on your market, you may never encounter a cash customer — or they may make up a significant portion of your business.  If your customers have the financial resources, many homeowners like buying their PV system outright because they want to flip the energy dynamic of their homes.  They’re attracted to the idea of no longer needing to pay an electric bill.  In fact, they may be hoping to make some money by selling energy back into the grid through a net metering program.

Some of the leading indicators that you may be dealing with a cash customer include:

  • They’re well-off financially.  While this one may be obvious, it’s worth calling out.  If your customer is able to pay cash upfront for their PV system, that means they’re financially stable.  You may see this reflected in what part of the city they live in, what kind of car they drive, etc.
  • They have sufficient tax liability.  Particularly for homeowners who are also business owners, or who potentially have a lot of capital gains, solar can be the perfect way to both reduce tax liability and take a step toward a more sustainable energy future.
  • They want to own their system.  Whether they view it as an investment in their property, or they simply emotionally invested in the idea of supporting solar, many cash solar customers want their system to be theirs alone.  They won’t ever be fully satisfied by the idea of leasing.
  • They want the biggest savings.  Because they’ve done the work of saving up the cash, they want the reward of getting the best deal.  In addition to wanting to own their systems, cash solar customers are motivated by the idea of getting the lowest cost, since they don’t have to factor in financing fees or interest. 

It’s worth noting that while relatively fewer customers actually pay cash upfront for their panels compared to the early days, this may change.  A higher-interest-rate environment will mean a significant uptick in the number of solar customers who want to pay cash.

To help homeowners decide whether they want to move forward with a cash purchase, your sales team needs to be able to break down the solar payback period.  For a cash purchase, the customer wants to know when the investment is going to pay off.  Because many cash purchasers believe they are purchasing their energy upfront, having a realistic break-even point is critically important.  

Instead of talking in absolutes, use ranges to give the homeowner an accurate assessment.  Although the typical solar payback period in the U.S. is between 8-12 years, other factors extend the range to roughly 5-15 years.  Regional energy differences, net metering programs, tax credits, and other factors all contribute to the financial landscape for a prospective customer.

Profile 2: The loan solar customer

With the introduction of specialized low-interest solar loans introduced in the late 2010s, the majority of solar customers now use some kind of loan financing to help pay for their systems.  

However, rather than just assume everyone is a solar financing customer, here are some of the leading indicators to look for:

  • They’re usually middle-income.  Solar financing customers are generally looking to save money.  They know they can’t afford to buy a system out-right with cash, but they do have some financial freedom to invest in solar long-term.  They’re happy if they can save even as low as $20 a month.
  • They have sufficient tax liability.  Like cash customers, financing customers are also looking for a way to reduce their tax liability.  As mentioned above, saving money is key for the loan customer — which certainly extends to taxes!
  • They want to own their system.  Again, like the cash customer, the solar financing customer is either internally (eco pride) or externally (home value) motivated to own their system.  By understanding these motivators, you can better understand what kind of loan will make the most sense.

For customers considering a loan, it usually all boils down to how much net savings they can achieve.  You can help a solar customer understand net savings by sharing the following formula:

Net savings = monthly loan payment + new electricity bill < old electricity bill.  

This formula is why low APR and 20 or 25 year loans tend to be most popular with this crowd.  The math just works in their favor!

RELATED: Solar customer expectations and how they impact solar installer operations

Beyond crunching these numbers, there are other important elements that will help you understand and guide those who wish to finance panels.  In some instances, a co-signer can help a borrower move forward, but the parameters here will depend on the financier.  While some lenders expect a co-signer to live in the home where the panels are being added, that's not the case for others.  

Those hoping to secure a loan should also be well aware of the typical debt-to-income ratio.  As mentioned above, a 45% debt-to-income ratio, or better, is typically expected from a lending institution.  Additionally, the magic number for a credit score is (roughly) 650.  If a prospective customer's score is less than 650, you don't want to simply pass them financing options that you know are unlikely to work out.  Instead, being upfront but sympathetic can build trust that could work out to your advantage down the road.

If a homeowner's financial circumstances improve and your sales team has made a positive connection, they will be much more likely to return to your company when they're ready.  They will also be more likely to speak positively to other prospective customers.

Profile 3: The leasing/PPA solar customer

The long-term savings for purchasing panels are certainly better, but no one should be lured into thinking that leasing/PPA only provides short-term benefits.  Instead of 40-70% in expected long-term savings, solar leases should still help a homeowner save between 10-30% over the longer term.  For homeowners who are not in a position to buy or finance their panels, this is still a tremendous option – one that is critical to the continued expansion of the solar industry.

Leases/PPAs, or Power Purchase Agreements, are also returning in popularity because of the increasing interest rates of solar loan products.  Broadly similar to leasing, PPAs require few (or no) upfront costs and allow for a relatively simple process of adding panels to a homeowner's roof.  A developer would essentially take care of the details and sell the energy to the homeowner at a fixed price.

There are a few common characteristics to both PPA and leasing customers, including:

  • They may have a low tax liability.  Even if they could buy outright, without a tax incentive, many homeowners would rather keep that money in the bank.
  • They may have a tighter budget and/or a lower credit score.  Some homeowners may not have the credit score required to qualify for a reputable solar lender or credit union.  Others may just not be able to afford the current interest rates.
  • They don’t want to be responsible for maintaining their PV system.  They don’t want to commit to what 25+ years of owning and maintaining solar looks like.

One of the ways to talk to someone who is interested in leasing panels is to discuss their tax status.  For those who don't have much in the way of tax liability, leasing panels makes plenty of sense.  Even though homeowners who lease panels are not able to claim the solar tax credit, those with a low tax liability wouldn't have the same advantage as someone with a higher liability anyway.

This is why leasing tends to be an especially good option for seniors and/or retirees who want the benefits of solar panels without having to deal with loans and maintenance.  

However, make sure to remind your leasing customers that a leased solar PV system does not add value to the home.  This may be a hidden reason that your customer is considering going solar.  By catching this potential miscommunication early, you can provide a better customer experience.

Homeowners have options for adding solar panels

Adopting a solar PV system is one of the biggest financial decisions a homeowner will make.  Because it's a large commitment meant to pay off over the course of years or decades, homeowners need to feel a sense of control throughout the process.  Sales teams that help homeowners make the switch on their own terms are much more likely to cultivate happy long-term customers.  By listening intently, being ready with timely industry facts, and providing as much flexibility as possible, installers can give a customer all the tools they need to move forward with confidence.

For more information on how to improve customer satisfaction and operational efficiency, contact Bodhi today to get started.

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