Advantages and disadvantages of different finance options
When it comes to funding your energy efficiency upgrade, you need to assess the pros and cons of the different options available to you.
| Up-front commitment of capital | Some businesses may seek options where the need for up-front investment in the form of internal financing is reduced. |
| Ownership of the asset and balance sheet impact |
There are benefits to avoiding having new debt on the balance sheet as this can affect existing loan covenants and the ability to get further finance. However, some businesses may prefer to own assets, even if this impacts their balance sheets. |
| Surety/collateral | Some finance options require that a business or its owners provide security or supporting collateral, which can be a barrier. |
| Repayment terms | Businesses should be wary of repayment obligations which they might be unable to meet, especially when repayments can vary. |
| Tax treatment | Depreciation, interest payments and repayments that are treated as operating costs are tax deductible. |
| Risk transfer | The risk of the energy efficiency or renewables project not performing as expected or losing value to the financier can be transferred under some finance options. |
- 1. NSW OEH ‘Energy Efficiency and Renewables Finance Guide’.