Credit unions team with fintechs to power solar lending

To expand its portfolio of loans, Teachers Federal Credit Union began its foray into residential solar lending this spring.

Since that time, nearly 1,500 members have borrowed money to install solar panels. It's a pricey project — although consumers save on energy over time, the conversion to solar requires them to cover the upfront cost of hardware, as well as so-called soft costs like permit fees and installation charges. A solar loan covers all of these expenses.

“Residential solar lending has become part of what we call our ‘supplementary strategy’ in order to help us diversify our balance sheet alongside our organic loan growth,” said Denise McGlone, chief financial officer of Teachers Federal, a $8.7 billion-asset credit union in Hauppauge, New York. Teachers Federal declined to state the dollar volume of its solar lending program.

Depending on the setup, a solar installation can even generate revenue for the consumer, McGlone said.

"What’s good about solar energy, in addition to being socially conscious and consistent with a cleaner environment, is the consumer gets to take themselves off of the power grid and subsist on solar instead, which they can then, in certain places, sell back parts of to result in savings on their monthly energy bill,” McGlone said.

The number of solar installations in the U.S. surpassed 3 million in the second quarter, with the largest portion installed in the residential sector, according to the Solar Energy Industries Association, a national, nonprofit trade association based in Washington, D.C.

To assist with underwriting these kinds of loans, credit unions are forming partnerships with financial technology firms that specialize in solar-based lending and other environmentally beneficial initiatives.

GoodLeap, which works with Teachers Federal, is a fintech that specializes in providing financing options for the residential solar and broader sustainable home solutions industry through a vetted network of solar installation contractors.

The Roseville, California, company’s digital marketplace connects business partners, consumers and financial institutions to finance and deploy a broad suite of sustainable solutions at scale. GoodLeap has enabled the deployment of over $9 billion in capital for sustainable home improvement products since 2018.

“We will typically service the loans for our financial partners, although we do offer them the option to do the servicing themselves because we have built a relationship with our contractors, and it’s easy for us to go to them if there’s an upset customer or any issues,” said Sean Coletta, senior vice president of capital markets at GoodLeap.

By working with credit unions to originate environmental, social and governance-focused loans on their balance sheets, GoodLeap can not only gain new sources of funding, but also receive feedback on prospective products.

Similarly, Piper Sandler has helped build partnerships between financial institutions and fintech firms, and assisted in the origination of more than $4 billion in solar loans to over 110,000 new credit union members.

“The fintech gets a loyal and professional partner who is collaborative to work with, and the credit union gets to work with a professional technology firm that provides them with not just knowledge, but new members and new loans,” said Peter Duffy, a managing director at Piper Sandler who has helped to broker many fintech-credit union relationships.

Other lenders, such as the $233 million-asset Virginia Community Capital Bank in Richmond, are similarly working with fintechs on solar. VCC is working with Ando, a challenger bank that focuses on sustainability.

But credit unions are particularly adept at bringing in borrowers for solar projects, positioning them to be a reliable partner to help fund loans originated by the fintechs. “The most consistent and long-term source of funding is proving to be credit unions,” Duffy said.

Alliant Credit Union in Chicago has purchased pools of loans originated by fintech firms from other credit unions, and has further analyzed these fintechs to learn how best to approach and navigate direct partnerships, according to Charles Krawitz, vice president of commercial lending and loan trading for the $14.3 billion-asset institution. Alliant declined to provide specific loan volume figures.

For those credit unions that aren’t able to engage in solar lending directly, they can still purchase loans from other credit unions through the sale of participations.

“Out of the over $4 billion that we’ve helped originate, roughly $700 million has been participated between credit unions, which has been a real boost for them,” Duffy said.

But regulatory incentives such as the federal investment tax credit and the allowance of a 25-year loan term for solar and other specific uses are not evergreen. Should they not be extended, the solar-lending sector could weaken.

“Uncertainties … make planning for this loan product a bit more difficult,” McGlone said. Absent both the tax credit and 25-year loan term, credit unions will be at a competitive disadvantage.”