Green Projects In Need Of Cash | McGovern says banks must do their part to spur energy economy
Two extremes of the threadbare economy are at odds.
At one end is the push for businesses to develop and adopt new, energy efficient “green” technologies as a way to cut costs and be friendlier to the environment. At the other end are the banks that are reluctant to finance such projects.
The situation is coming to a head and U.S. Rep. Jim McGovern, D-Worcester, hopes the federal government can act quickly enough to alleviate the situation.
“The availability of capital is a huge issue,” McGovern said. “Banks aren’t lending like they used to,” even if it’s for attention-getting, money-saving feel-good projects like solar power installations. However, “there are some indications that things are changing,” McGovern said.
The most promising change may be a U.S. Department of Energy loan guarantee program designed to make financing green projects more palatable for banks. The program has been in existence for years, but McGovern said the Bush administration didn’t make a single guarantee in its two-term tenure.
Now, the department finds itself scrambling, McGovern said, but could begin guaranteeing loans by the end of April.
Central Massachusetts bankers agree that they need encouragement to make loans for energy efficiency projects.
Project Specific
“We do a lot of lending for small businesses and commercial real estate,” said Mark O’Connell, president of Avidia Bank in Hudson, “but nothing specifically for that kind of project.” O’Connell stressed that Avidia lends “based on the strength of the borrower or company. If it makes sense, we seriously consider it. We haven’t changed the way we do business.” He said Avidia clients with lines of credit may be using that credit to undertake green projects.
O’Connell said the best way to boost lending for energy efficiency projects might be through state tax credits that take some of the load off borrowers and help transactions “make more economic sense” for banks.
John Hamilton, president of Charles River Bank in Medway, said a credit line is far from the best way to finance an energy efficiency project like a solar or wind installation.
“For green improvements, you’re looking at some type of term loan rather than a line of credit,” he said. “That makes sense for the business, too. You don’t want the debt for that kind of project to be a long-term liability.”
Still, Charles River hasn’t made any loans specifically to businesses looking to do energy efficiency projects, Hamilton said. And it probably won’t without loan guarantees from the U.S. Small Business Administration, tax credit programs, outright grants or some form of interest rate subsidy to make the projects less risky for the bank’s balance sheet.
McGovern noted that the state will have “great discretion on how to use (federal) stimulus money” for the development of green business technology, but what’s really necessary is for community banks to become more involved with the direct funding of green technology projects.
McGovern is pushing for the formalization of a Central Massachusetts “green” cluster. To do that, the region’s boosters will have to ask businesses, “What do you need to locate here?” he said. When a company answers that question, McGovern wants the state, the federal government and local communities to be ready to provide those things, and a key part of that effort is the cooperation of community banks.
“We need one-stop shopping if we’re going to create a cluster,” he said. “We need credit, a workforce, communities willing to work with them and a loan guarantee program that works.”
“Banks are not doing what we’d like them to do,” McGovern said. “I wish banks were more visionary when it comes to this, but in these times they want to be more conservative and if I were a banker, maybe I would want to be more conservative, too. But there’s no reason (a business owner) can’t get what he needs to continue to grow.”
Vincent DeVito, a Boston-based attorney with Bowditch & Dewey, has a Central Massachusetts business client whose application for a $3 million loan to convert most of its facilities to solar power was turned down. That client spends about $140,000 each year on electricity, but was rejected despite the dramatic cost savings the solar installation would’ve brought.
DeVito, a former U.S. assistant secretary for energy policy and international affairs, said the DOE loan guarantee program may favor larger projects. He also noted that the federal stimulus bill allows businesses small or large to establish on-site power generation and take federal grant money in lieu of tax credits.
DeVito said the state should develop its own loan guarantee system for smaller, local projects. The idea would be that banks would approach the state with “a good applicant.” The applicant would be audited by the state and if successful, the bank loan for the project would be guaranteed “like a student loan, but with more security.”
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