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Financial institution loans for clean energy projects are originated and serviced through an entity other than the government, typically banks. In this case, a state or local government is not the finance program administrator, but may still play a role through credit enhancement or providing capital for the loan pool or both.

Loans from financial institutions can be structured in many different ways and often look like commercially available loan products, but with more attractive terms. A loan might be structured as a short-term, unsecured personal or business loan, or as a longer term loan secured with a lien or other claim on the property being improved. Some programs allow for on-site approval of unsecured financing that can enable the building owner to quickly replace equipment. These loans can also help full service contractors close a deal more easily on the spot.

Another reason working with financial institution lending programs appeals to state and local governments is that they already have the expertise in underwriting and navigating consumer lending laws. Few government entities have the staff needed to make loans directly to individuals.

It's important for governments to remember though that while financial institution programs are flexible and can be structured to address quick equipment changes or larger-scale retrofits, one program will likely not be able to address both, unless several distinct products are created and tailored for specific uses and specific market segments.

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  • Very flexible; can be structured to meet specific program goals
  • Allows government entities to work with financial institutions that have greater lending expertise
  • Leverages private capital, especially if it stimulates investment that would not have occurred otherwise


  • For secured programs, must conduct rigorous credit analysis on borrower's ability to pay
  • Lenders will often reject a significant percentage of applicants during underwriting unless otherwise protected against loss
  • Costly collateral or security may be required from borrower