By Stewart, Jackie
American Banker , Vol. 178, No. 3
Byline: Jackie Stewart
Heartland Financial USA (HTLF) is hoping to generate more greenbacks by financing energy efficiency projects.
The Dubuque, Iowa, company is working with BluePath Finance in San Francisco to provide funding for energy-efficient projects by commercial and industrial companies, as well as efforts in the nonprofit groups and governmental agencies.
A slow economy and artificially low interest rates have forced banks to find new ways to boost their bottom lines. Many are selling new products to existing customers, lending to small businesses or focusing on niche markets. Heartland's effort touches on all of those methods. The $4.6 billion-asset company is also looking to tap into an area that is ripe for growth, industry observers say.
"It's another arrow in our quiver in how we approach our customers," says John Schmidt, Heartland's chief financial officer and chief operating officer. "We want our customers to be more successful. This is one of the tools that can help them achieve that."
BluePath works with companies that perform energy audits of businesses, municipalities, hospitals, and other groups. If an audit unearths ways to improve energy efficiency, BluePath will provide the capital to get the work done. Heartland's banks will provide loans to BluePath so it can fund the projects.
Heartland also bought a minority stake in BluePath for an undisclosed amount.
"We can get deals done quickly," says Warren Jones, a former investment banker and BluePath's chief executive. "There's a dedicated source of capital rather than being worried about where the next project dollar comes from. From Heartland's end, they put their money to work but also we help them understand energy projects. We help them diversify their investment portfolio."
Banks were once reluctant to fund energy efficiency projects, but they are warming up to the idea, says Angela Ferrante, director of alternative energy solutions at Energi. Private equity has already started managing funds for these types of deals, she says.
Banks face several challenges with efficiency lending, including questions over what can be used as collateral, Ferrante says. Loans for renewable energy projects, such as solar panels, are relatively straightforward. Banks use the equipment as collateral. But in the case of efficiency projects, the upgrade "becomes part of the building," she says.
Businesses typically apply for a commercial real estate loan or use a building's existing equity to fund big efficient projects, says Bill Peterson, chief credit officer at New Resource Bank in San Francisco. Falling real estate values have made it more difficult to fund projects that way, he says.
Instead companies may focus on smaller upgrades funded with shorter-term equipment loans. This means that there are fewer upgrades that can pay off quickly enough to make the deals worthwhile, Peterson says. …