🌱 Green Financing Explained: How PACE Loans & Tax Credits Lower Your Cost of Capital 💰

♻️ What Is Green Financing? PACE Loans, Energy Tax Credits & Smarter Property Upgrades 🌎

What Is Green Financing?

Green financing refers to specialized funding programs and incentives designed to help property owners pay for energy-efficient, renewable, and sustainability-focused upgrades. Instead of relying solely on traditional loans, green financing leverages property-based assessments, tax incentives, and long-term cost savings to improve cash flow and asset value.

For commercial and investment property owners, green financing is no longer a niche option—it is becoming a capital stack tool that can materially improve returns.

As a mortgage broker working across commercial, investor, and owner-occupied transactions, I increasingly see green financing layered alongside conventional debt to reduce out-of-pocket costs and preserve liquidity.

PACE Loans: Property-Based Green Financing

PACE (Property Assessed Clean Energy) loans allow property owners to finance eligible energy improvements and repay them through a property tax assessment, rather than a traditional loan payment.

Key characteristics of PACE financing:

• Off-balance-sheet treatment in many cases

• Long amortization terms (often 20–30 years)

• Fixed interest rates

• Repayment tied to the property, not the borrower

• Transfers with the property upon sale (subject to lender consent)

Common PACE-eligible upgrades include:

• Solar energy systems

• HVAC replacement and efficiency upgrades

• Roofing, insulation, and building envelope improvements

• LED lighting retrofits

• Water efficiency systems

From a lender’s perspective, PACE financing is evaluated carefully because it typically sits as a tax-assessment lien. Structuring matters. When done correctly, PACE can supplement senior debt without disrupting a refinance or acquisition strategy.

Energy Tax Credits & Federal Incentives

In addition to PACE, green financing often includes tax credits and depreciation incentives that directly impact after-tax returns.

Common incentives property owners use:

• Federal Investment Tax Credits (ITC) for solar and renewable systems

• Accelerated depreciation (including cost segregation strategies)

• Energy efficiency deductions for commercial buildings

• State and utility-level rebate programs

Unlike loans, tax credits reduce tax liability dollar-for-dollar, making them especially powerful for profitable businesses and high-income property owners.

When coordinated properly with financing, tax credits can significantly shorten payback periods and enhance internal rates of return (IRR).

Why Green Financing Matters for Property Owners

Green financing is not just about sustainability—it is about economics.

Benefits include:

• Lower operating expenses

• Improved net operating income (NOI)

• Higher property valuations

• Improved tenant appeal

• Protection against rising energy costs

• Enhanced exit pricing

For investors, energy-efficient buildings often command better financing terms and stronger buyer demand at sale.

How Green Financing Fits into a Mortgage Strategy

This is where many property owners make mistakes—green financing should never be evaluated in isolation.

A mortgage broker who understands:

• Senior loan requirements

• Lien priority and consent

• DSCR and underwriting impacts

• Refinance and exit timing

can help structure PACE loans and tax incentives without compromising future financing flexibility.

At Medallion Funds, we approach green financing as part of the overall capital stack, not a standalone product.

Final Thoughts

Green financing is no longer experimental. It is a strategic financing tool that can lower costs, increase cash flow, and enhance long-term property value—when structured correctly.

If you are considering solar, energy efficiency upgrades, or sustainability improvements, the conversation should start before you finalize your mortgage or refinance.

That coordination is where real value is created.

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© 2023-2024 Bill Rapp, Medallion Funds LLC, Director of Capital Advisory