CleanFi supports all different methods for financing a project. But some projects only work with C-PACE. For example, clients that don’t have the financial profile to support a loan for the project amount, but have that value or more in equity on their property.
(If you need a quick refresher on C-PACE, check this Knowledge Base piece)
When financing via PACE, there is a calendar and timing issue to be aware of.
State and County Fiscal Years.
C-PACE is tied to the local government calendar. In most C-PACE markets, getting funded after June 30th could add cost to the project financing, and a year to the financing term.
The overwhelming majority of state and local governments in the US are on a “July 1st to June 30th” fiscal year. C-PACE funders depend on the county government to collect their borrowers’ loan payments via the property tax bill. If a project is funded after the June 30th deadline, in most cases it will have to wait a year to be included in the next tax bill.
Exceptions to this are markets where the C-PACE debt financing process does not involve including the debt in the tax bill because funders are allowed to bill directly, and they often do so as soon as the project is complete. Examples of such states are Texas and Virginia.
Capitalized Interest (cap-i)
Funders like to be paid in advance of the loan month, not at the end. So if you are borrowing $100 today for the next year at 12% interest, then today you also owe $11 to cover this month debt service. If you need to wait a few weeks before making that first payment, then you will typically have a period of interest for the period before that first payment; that’s called capitalized interest, because the lender will add that interest amount to the principal.
Cap-i is that interest that accumulates between the date of the borrower’s use of money and the first payment made on that loan. But with PACE, the debt-service invoices are most often sent once-a-year only. So when CleanFi returns C-PACE quotes for, say, a-25-year term, the payments are presented assuming that the borrower begins making debt-service payments right away. Calculated in the displayed “Closing Costs” is that interest representing the period between the time the funds were said to be needed and the time the first tax bill is due. During that time, the money is not free; it is subject to the same interest rate as the rest of the loan. The longer the period before the first tax bill, the more interest is due, so the higher the principal.
Cap-i is added to the Principal
Capitalized Interest is calculated on the day of the first draw and is based on how many days will pass before the first tax bill is due. So: if you miss the fiscal year deadline, the Principal amount borrowed and financed for 25 years could go up by 5% or so…
Tell your client: Avoid needless capitalized interest! Get your project funded and started before June 30th!
C-PACE funding applications and underwriting take 6 to 8 weeks to close, on average, some longer. So, don’t wait. Call us or write us if you want to review your C-PACE qualifying projects.