There are many funding options available for rooftop solar, as many South Africans try to escape Eskom’s embattled power supply.
During the budget speech, Finance Minister Enoch Godongwana said that businesses would be able to reduce their taxable income by 125% of the cost of investment in renewables.
He added that the government would guarantee solar-related loans for small and medium-sized businesses for a 20% first-loss bases. This means that government will carry 20% of the loss on defaulted loans, with institutional lenders not having to carry the entire loss.
The government hopes that this will incentivise businesses to invest in self-generated renewable energy.
However, the initial capital costs will likely be exclusionary without funding assistance, and lending institutions will have a crucial role in helping businesses install and operate rooftop solar.
That being said, lending institutions often require security for loans to be advanced if a borrower defaults under a loan agreement.
The government will guarantee 20% of the defaulted loans without additional security, but lenders will likely not be able to recover the money borrowed in the loan agreement.
Thus to assess the appropriate security, the circumstances of the borrower must be assessed in order to find the best security that will be provided to the lender in a funding arrangement.
Mashudu Mphafudi and Michael Bailey at Cliffe Dekker Hofmyer looked at securities that lenders should consider when advancing loans for rooftop solar.
Although their analysis looks mainly at lenders, the securities listed also give valuable information to borrowers.