Exploring the Benefits and Risks of Off-Balance Sheet Capital

Real Estate Broker/Owner with Centum Real Estate Group Lic #10401249650

Off-balance sheet capital refers to financing arrangements that are not reflected on a company's balance sheet, but still impact its financial position. One form of off-balance sheet capital that has gained popularity in recent years is commercial property assessed clean energy (CPACE) financing.

CPACE financing allows businesses to finance energy efficiency and renewable energy improvements to their commercial properties through long-term assessments on their property tax bills. Because the financing is tied to the property rather than the company, it is considered off-balance sheet capital.

One of the main benefits of using CPACE financing is that it can help a company to maximize its capital structure. By using off-balance sheet financing, a company can preserve its on-balance sheet credit facilities for other purposes, such as working capital or acquisitions. This can help to improve the company's financial flexibility and reduce its overall cost of capital.

Another benefit of CPACE financing is that it can be used to finance a wide range of energy efficiency and renewable energy improvements, including LED lighting, HVAC upgrades, solar panels, and more. This can help a company to reduce its energy costs, improve its environmental footprint, and meet sustainability goals.

However, it's important to note that there are also some risks associated with using CPACE financing. For example, if the company defaults on its property tax payments, it may lose its property. Additionally, the long-term nature of the financing means that the company will be paying back the assessment over a period of 20-30 years, which could impact its financial projections.

Overall, CPACE financing can be a useful tool for businesses that are looking to finance energy efficiency and renewable energy improvements, but it's important to carefully consider the benefits and risks before deciding if it's the right fit for your company.

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