Lenders offer green for being green

While many businesses find that being “green” may not be as easy as they first thought, they are discovering that being environmentally-conscious and energy-efficient gives them access to fresh sources of capital.

Gary Groff, vice president and relationship manager with green lender New Resource Bank in San Francisco, said:

“If someone wants to take out a loan with us, we take a very close look at the character of the business.  We want to work with someone who is not just interested in profit, but a business that takes has a strong commitment to sustainability and growth.  That’s a great attribute.”

The bank’s approach seems to be working: New Resource Bank is only six years old, but experienced its first year of profitability in 2012 and has seen an increase in requests for loans that support sustainable practices.

Groff said that the businesses he works with have made an effort to connect with customers who demand organic products, want solar systems installed or focus on energy efficiency.  Groff said loans, which range from $250,000 to $4 million, are typically meted out to existing companies with tremendous potential for growth in the green marketplace:

“We might lend out money to a business that wants to purchase a building, complete an energy audit on that building, make suggestions for improving energy efficiency and then receive a stronger piece of collateral in return.  You can’t get that from an average bank.”

Two examples of companies that have benefitted from New Resource Bank’s lending policies are Strauss Family Creamery in Marshall and Hog Island Oysters in Tomales Bay.  Strauss produces a wide range of certified organic dairy products and Hog farms oysters following strict sustainable techniques.

A 2012 report from the Global Alliance for Banking on Values makes a strong case for sustainable banking. In a nutshell, it says that sustainable banks provide a compelling approach for the future of banking by focusing on the real economy, offering resiliency through strong capital positions, delivering stable and solid financial returns and providing for growth.

Statistics from the report further show that the percentage of loans and deposits to total assets over the cycle of the financial crisis is more than 72 percent for sustainable banks, compared with only 41 percent for Globally Systemically Important Financial Institutions (GSIFIs, or banks large enough to set off a financial crisis if they failed).

This report illustrates a strong commitment to lending to meet societal needs by sustainable banks:

“Sustainable banks … have consistently delivered products, services and social, environmental and financial returns to support the real economy.  They have increased their activity during the present financial crisis, expanding their lending to small and growing businesses in particular.”

In what may be a unique sustainable business model for the rest of the country, the nonprofit Initiative Foundation in Little Falls, Minn., serves a 14-county area in the state and lends money to businesses that promote job growth in underserved areas.

Dan Bullert, business finance manager for the foundation, said:

“We created the lending fund to meet a triple-bottom line where we’re helping businesses become viable, assist in poverty reduction and provide quality jobs.  We also have a green lending program that helps businesses reduce energy costs or support a sustainable product or service.”

For instance, the foundation has helped one client develop a process to create biodiesel fuel out of waste through a reactor process (think Back to the Future) and has worked with another company that recycles salvaged vehicles and recycles or resells the parts rather than placing them in a landfill.

Loans from the nonprofit organization range from $50,000 to $250,000, but in some cases may be 70 percent funded through a traditional partner bank, 20 percent funded through the foundation and the remaining 10 percent comes from equity injection.  The foundation receives its funding through grants and donations.

According to a 2011 annual report from the agency, the outlay in sustainable manufacturing, technology, agriculture and services has resulted in an average return on investment of 519 percent within the 14-county region.

Bullert said the foundation is not so concerned with any “greenwashing” – a practice used to promote the perception that an organization’s aims and policies are environmentally friendly – to secure loans, since there is a vetting process to make sure a new product or service meets sustainable standards.

He said:

“Our real focus is supporting community development and strengthening the abilities of communities to be sustainable and thrive.  Lending is one element of that.”

Scott Cooper, president and broker of record for Cal Green Lending in Calistoga, said that as lending trends continue to improve, green lending options continue to advance as well, driven in turn by the loosening credit markets.

Cooper said:

“There is more and more demand for green lending due to the importance of renewable energy and sustainability.  As long as these trends continue to rise, the need for funding will rise with them.”

Cooper’s loans, which target residential and commercial real estate borrowers, must be used for energy efficient upgrades to a residential or commercial property, including solar, new windows, better insulation, improved lighting, etc.  The average residential loan is $35,000, while commercial loans start at $250,000.

He noted:

“In most cases, the purpose of green lending is to allow funding solutions to enhance and improve the environment within buildings.  If you’re going to make the world a greener place, you should start at your residence or the place where you work since you spend most of your time there.”

There are other avenues to funding a green business as well.  These alternate funding sources include SBA loans, venture capital (or Angel) funds, friends-and-family financing and partnering with a nonprofit organization.  Loan amounts and conditions of lending vary greatly among these backers.

Gary Groff with New Resource bank said that there are a finite number of green lending institutions in North America, especially when compared to traditional financial institutions.  But Groff said the model for securing sustainable funding is changing:

“The bigger we get as a bank, the more I see us as the hub on the wheel of sustainability.  As we, and other sustainable lenders, develop expertise, other businesses gravitate towards us to access that knowledge base and the rolodex of connections – we know who the socially responsible investors are.”