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504 Green Loans for Energy Efficiency and Renewable Energy Projects

The SBA’s 504 Green Loan initiative promotes sustainable practices. This program assists companies to purchase renewable energy equipment. It embraces energy projects that are friendly to the environment; hence, more energy-efficient upgrades. The 504 Green Loan has two main goals: support the small companies financially and encourage the use of environmentally friendly methods.It can be difficult for small businesses to get green loans for growth or improvements. The green loan program presents an affordable option. It provides long-term fixed-rate loans for capital intensive fixed assets. This can be a breakthrough for the small firms that want to go green.

by | Jun 8, 2024

Qualifications for the 504 Green Loan.

Understanding Loan-to-Value Ratio in ABL

504 Green Loans are not available to all businesses. Small to medium sized enterprises SMEs are usually eligible. These businesses must have a tangible net worth of less than $15 million. Further, their average net income should be less than $5 million after federal income tax in the last two years.

Non-profit organizations and business entities engaged in speculative real estate are excluded from eligibility. 

Manufacturing companies, restaurants and hotels are few examples of eligible businesses. These businesses should have a physical address either in the United States of America or any of its territories. For instance a medium size hotel chain within the U. S. would meet these requirements.

Further, projects that seek a 504 Green Loan must meet certain energy efficiency requirements. Firstly, the project has to achieve a minimum energy consumption saving of 10%. It might alternatively produce as much renewable energy that is equivalent to at least 10% of the total energy usage in the facility. 

For instance, if a manufacturing company decides to install solar panels on its roof and reduces grid electricity by 20% and above, it will be eligible for this loan program.

Permissible Use of Funds 

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Loans from the 504 Green Loan program must be utilized properly. Qualifying expenditures include the acquisition of land or facilities or the renovation or construction of existing facilities. Furthermore, businesses can employ these funds to purchase long-term fixed assets such as machines and equipment. 

But the money cannot be used for working capital and inventory, to pay off debts or to refinance or to engage in real estate investments with high risks. It should be on projects that support energy efficiency and have long term financial benefits.

Wind Turbines

Wind turbines are an effective and renewable source of energy. They harness the wind to generate electric power. Wind turbine installations can be financed via the SBA 504 Green Loan. This includes the buying and mounting of the turbines and any other facilities that may be required. 

Imagine a business that requires $ 200,000 for a wind turbine. 90% of the project’s cost, or $180,000, is covered through the SBA 504 Green Loan. The remaining $20,000 is financed by the business. This means that if the wind turbine can reduce the energy costs by 50% and the annual energy cost is $60,000, the business can save $30,000 per year. This means that this results in $300,000 over the course of 10 years.

Green Roof Installation

One of the eligible purposes of using the SBA 504 Green Loan is the installation of green roofs. Green roofs are roofs that have been designed as vegetative systems with different layers of soil and vegetation. 

They offer a number of environmental benefits, including retaining stormwater, improving air quality, and increasing insulation. Green roofs also play a role in counteracting the urban heat island effect because they absorb heat and lower temperatures. 

Furthermore, they prevent the degradation of roofing membranes by solar radiation and temperature fluctuations. Promoting the use of green roofs can be an effective strategy for businesses to make buildings more sustainable and resilient while also improving the aesthetics of the buildings as well as the environment.

Energy-Efficient Lighting Upgrade

Benefits of Opting for ABL Loans

The SBA 504 Green Loan can be used to upgrade energy efficient lighting. Companies can substitute their conventional light installations with LED luminaries for energy-saving purposes. 

LED lights are more energy efficient and last longer compared to incandescent or fluorescent lights. Venture capital in lighting technologies can help businesses become more energy efficient and cut their electricity costs.

Also, LED lights produce less heat, which can be beneficial for managing heat and avoiding the use of air conditioners during summer as much as possible. In general, energy-efficient lighting replacement is a cost-effective means of improving energy efficiency and sustainability while also improving the quality of lighting in commercial settings.

Upgrading HVAC Systems

Replacement of HVAC systems is a major way to increase energy efficiency. Modern systems are more energy efficient for the same comfort level. The SBA 504 Green Loan can be used for HVAC system modernization. This includes the purchase of new units as well as their installation. 

An HVAC upgrade may cost $120,000 for example. The loan amounts to 85% or $102,000 of the inventory. The business pays the balance of $18,000. If the new system cuts the energy bill by 30% and the current energy bill is $50,000 a year, then the annual savings are $15,000. It means $150,000 in savings over 10 years.

How to Apply for a 504 Green Loan?

Energy Storage Solutions Enhancing Solar Power

The 504 Green Loan program has several application processes. First, identify your needs. Identify if your project meets the green requirements based on the focus on energy efficiency or sustainability. 

After that, look for a CDC in your location. These non-profit organizations partner with the SBA in the implementation of this loan program.

Apply to the CDC and get ready with all the needed documents. Among the required documents are proof of business ownership, financial statements, and evidence of possession of a project that meets ‘green’ qualifications.

The Role of CDCs

504 Green Loan applications are processed by the Certified Development Companies. They help the borrowers from start to finish and facilitate that all necessary conditions are met and all necessary documents are filled in properly. The time from submission to approval also depends on the speed. 

Usually, it takes 60-90 working days from the first contact with a CDC until the final approval from SBA. However, they can be processed on an expedited basis in some cases. Time and attention during this process are critically important for the 504 Green Loan.

 SBA 504 Green Loan and Solar Power Systems 

Factoring vs Tangible Assets

Several small businesses are embracing the use of solar power systems. The price to install may be high and the SBA 504 loan may come to your aid. This loan provides long-term financing with fixed rates for assets like solar panels. For instance, there’s a company in Arizona that installed solar panels on their office building with the help of a 504 loan.

The SBA 504 loan makes solar panel installation more affordable as they are expensive to install. Solar power cuts energy costs, and there is a potential for long-term savings. The Arizona Business saved $20,000 on annual energy bills since installing solar panels with the help of a 504 loan.

Transitioning to solar power alters the functionality of a typical day. Organizations also become less dependent on the use of fossil fuels, thus reducing incidences of power blackouts or high fuel prices. Also, the green trend can support a business’s brand image, as many customers are concerned about the state of the environment.

Contribution Towards Environmental Sustainability

504 Green Loans are beneficial to environmental conservation. Business persons who engage in renewable energy projects have lower carbon footprints and, therefore help to fight climate change. 

A significant number of projects are certified LEED projects providing increased asset value for the building and demonstrating a firm’s commitment to sustainability. 

How to Get the Most Out of 504 Loans

Understanding Account-Based Loans - ABL Loans

Strategic planning is necessary to achieve the highest benefits from a 504 Green Loan. The loan should be utilized for energy-saving and sustainable projects that reduce energy costs. 

An example may include the installation of solar panels, investing in better energy consuming equipment, efficient appliances, and improving insulation and heating and ventilation systems. This means that the strategic usage of funds ensures maximum loan benefits and also advocates for green initiatives.

Benefits of the 504 Green Loan

Effective utilization of the 504 Green Loan is advantageous because of the significant accrued benefits over time, making the investment worthwhile and environmentally beneficial.

The 504 Green Loan provides special features such as reduced down payments, energy reduction and extended repayment schedules that make it ideal for small businesses undertaking green energy projects. 

If you are interested in environmental sustainability and can participate in this opportunity to grow your business, you should do so. Climate change mitigation is not only good for the environment but also for your business.

Work With Professionals to Secure Financing

Navigating the Due Diligence Process and Associated Costs

Start the path to sustainability with Flaney Capital. We will walk you through the SBA 504 Green Loan application and connect you with low-interest lenders. We welcome inquiries from anyone interested in learning more about 504 loans. Call us at 1-888-822-0844

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Here are some answers to Frequently Asked Questions.

What are the main advantages of ABL loans?
ABL loans allow companies to use their existing assets as collateral for financing, providing greater flexibility than traditional lending methods.
Are there any risks associated with ABL loans?
Yes, if a business cannot repay its loan, the lender may seize the assets used as collateral. Businesses need to understand this risk before opting for an ABL loan.
How does accounts receivable factoring work for ABL loans?
In accounts receivable factoring within the context of ABL loans, a business sells its outstanding invoices (accounts receivable) at a discount to obtain immediate cash.
What is involved in the due diligence process for obtaining an ABL loan?
The due diligence process typically involves assessing a company’s financial health, including reviewing its balance sheet, income statement, and cash flow statement, among other things.
Can all types of companies apply for an ABL loan?
While any company can apply for an ABL loan, it is particularly beneficial for those with a high volume of accounts receivable or significant tangible assets.