Ever since SBA Procedural Notice 5000-862692 was issued, we’ve been getting tons of questions about it. We addressed some of these in a December ’24 eBulletin. However, we haven’t dealt with the many questions about allowing SBA financing to be combined with C-PACE financing. This topic deserves its own eBulletin.

Let’s start at the beginning. C-PACE stands for Commercial Property Assessed Clean Energy. It’s a funding mechanism rather than a program. C-PACE allows building owners to make energy-related upgrades in existing buildings or new construction projects. The goal is to make renewable energy accessible and cost-effective.

Under C-PACE, commercial property owners can obtain low-cost long-term financing for energy efficiency, water conservation, and renewable energy projects. Most property types will qualify. It’s a good fit for projects financed by SBA as energy public policy projects. But it’s seldom used and very little understood.

The program starts with a state-level government policy classifying clean energy upgrades as a “public benefit.” Eligible property improvements including items like a new sewer, water line, or road upgrades, can be financed with little or no money down.

The lender making the C-PACE loan determines whether a downpayment is required. The state determines project eligibility. But in general, funds can be used to meet construction costs, replenish operating reserves, and cover debt payments through project debt service stabilization. In some cases, funds can even be used to pay down or restructure existing debt.

Many private lenders have created this type of financing, using their own source of funds, likely raised through private equity. The lender makes the credit decision using its own documentation. C-PACE financing is often repaid by an assessment added on the property tax bill over a term that matches the useful life of the improvements (typically 20 to 30 years). The C-PACE assessment transfers if the property is sold and can be passed through to tenants where and when appropriate.

A wide range of properties are eligible. Most commercial/industrial and multifamily properties can qualify, including nonprofits. Most energy or water-saving projects qualify for C-PACE, including projects for acquisition and replacement. But if a borrower is delinquent on its real property taxes or has a history of serious delinquency, or if the property has severe environmental remediation issues, the project probably will not qualify.

Since C-PACE financing is repaid through increased property assessments (i.e., value), in the event of C-PACE default its financing is superior to liens securing SBA loans. Historically SBA has not allowed the C-PACE loan to be superior to the SBA lien. But SBA Procedural Notice 5000-862692 now allows projects financed by SBA to include C-PACE.

Access to C-PACE financing gives CRE owners several benefits: No Down Payment; financing for all hard and soft costs; no recourse (there’s no personal or business guarantee); long-term financing. You can see how well it fits with your SBA portfolio.

Moreover, a C-PACE borrower often saves more money on their energy bill than they paid back on their property tax bill. And just like SBA financing, the high advance rate allowed (up to 100% of the project cost) allows the borrower to conserve its cash for operating needs.

C-PACE funding: A very good deal indeed for all parties concerned!

Richard Jeffrey, Senior Associate
CDC/504 Program
richard@jrbrunoassoc.com
www.jrbrunoassoc.com

1/8/2025