In our last blog post and webinar, we covered the parameters that a lender looks at before giving loan for a solar project, but after a volley of questions during the webinar, we understand that a lot of solar enthusiasts are also interested to know the terms at which the financing might happen.
I. Financial Terms
Debt Equity Ratio: 70 : 30
Banks are willing to increase their contribution if the developer is experienced or has an existing relationship with lender.
Interest Rate – 13% quarterly
Promoter Risk Profile, Discom Payment History and Security from the developer determine the Interest rate for the project. Typically, this interest is charged quarterly on the outstanding amount of the loan. Be careful of the fine print, which often says that the lending firm can reset the rate of interest at its discretion.
Repayment: 48 quarterly instalments
Typically, no prepayment of the principal amount is allowed without the the explicit consent of the lender.
Liquidated Damages: 2% per annum compounded annually
In case of default on repayment of loan, banks would charge an additional liquidated damage for 1% to 3% per annum.
Upfront Fee : 0.05% of the loan amount
One time non refundable payment of 0.05% to 1% is charged by the lender for processing and in some cases underwriting of the loan. This amount depends on the size of loan and source of financing primarily.
Moratorium: 1 year from the scheduled COD
The lender doesn’t take repayment of principal amount for 1 year after COD while the interest repayment starts from the scheduled Commercial Operation Date (Commissioning Date)
II. Security Package
Security Package refers to the security that a lender would want to keep in case you don’t repay the loan.
The typical security package would include:
- First charge by way of MORTGAGE and HYPOTHECATION
- First charge on company’s book debt or any other cash flows or assets related to the project.
- Assignment in favour of the lender of the project – all the rights, title, interest, benefits, claims & demands, insurance contracts/proceeds related to the project.
Collateral Securities include:
- Pledge of shares of the company which owns the project
- Debt Service Reserve Account (DSRA) which means typically, 2 quarterly instalments of repayment to be kept as a deposit with the lender as safety against delay in payment by discom and hence, owner’s inability to pay the loan back instalment.
- Personal / Corporate Guarantee would come from promoters / owners / directors of the project.
The security package including the mortgage of the entire project land has to be created before 1st disbursement for the loan is made.
III. Terms & Conditions
Pre Commitment Conditions
There are the conditions that the Project Owner needs to meet before Loan Agreement can be entered into which includes assigning of Bank Guarantees from EPC Contractor to the lender, submitting latest IT Return and Assessment Orders, submit details of Personal Guarantees, confirmation of not adding O&M expense and land lease expense to the cost of the project etc.
Pre Disbursement Conditions
While the loan agreement is signed, before the 1st disbursement is made the lender imposes a few more conditions which include putting in place a project management plan, an independent Lenders Engineer’s approval on EPC Contracts and other technical parameters, approval on Terms of Payment and Warranties of the EPC Contractor, documentary evidence for lease agreement, Power evacuation approval etc.
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