With its latest expansion, Live Oak Bank is sending a shoot into a new lending program as well as into an additional industry.

The Wilmington bank announced it would begin lending to utility-scale solar projects, positioning it to directly influence the growth of solar farms across the country. Unlike Live Oak’s other verticals, however, these loans will not be backed by the Small Business Administration. They will be made through a similar program in the U.S. Department of Agriculture.

Live Oak Bank has long been interested in lending to the renewable energy sector, and bank officials started talking with solar developers a couple of years ago, according to Kay Anderson, the bank’s director of emerging markets. But since solar farms are passive businesses, without daily operations, they don’t fit within SBA parameters, she said. 

As long as Live Oak’s small business lending was limited to SBA programs, it couldn’t enter the renewable energy market.

“Then last year we expanded into USDA [lending programs],” she said. “The USDA has similar programs to the SBA but administered completely differently. We discovered if we pursued USDA programs, solar would be eligible.”

Anderson and other bank officials researched the USDA’s Rural Energy for America Program (REAP), which lends amounts from $5,000 to $25 million for renewable energy projects in rural areas, guaranteeing up to 85 percent of the loan amount.

Once they determined that REAP would be a good source of government loan guarantees, bank officials began in January to build Live Oak’s capacity to finance solar farms. Eight months later the bank was ready to announce its new category.

Significant work goes into preparing to enter a new industry, said Micah Davis, Live Oak’s marketing director, including defining the credit parameters for that industry, testing theories in the actual market and hiring a domain expert.

In this case, Live Oak’s five-person renewable energy team includes two experts, Anderson said. It brought on Rebecca Rogers, a finance professional whose career has been spent in lending for renewable energy projects. It also added Debra Nesbit, a former longtime USDA finance official, to help the bank navigate the federal department’s lending process, which is different in each state.

Davis compared Live Oak’s preparation process to that of developing a new restaurant. Once all the variables are in place, he said, a restaurant holds a soft opening for friends and family to test the restaurant’s readiness to handle food production and service. The official opening happens only when owners are sure they can handle business. The same is true, he said, for the bank in its timing of an announcement of a new lending vertical.

“Because of [Live Oak’s] hyper focus on the customer experience, we want to make sure that when the customer comes through the door, we have answers to their questions,” Davis said.

The potential projects that will likely fit Live Oak’s new offering will be farms with tens of thousands of solar panels, with the power generated – between one and 25 megawatts – being sold to utility companies, said Jordan Blanchard, the renewable energy lending team general manager.

Currently, there are six solar projects in Live Oak’s pipeline, he added. Those loans should close by the end of the year. While USDA will guarantee REAP loans up to $25 million, Blanchard said Live Oak will likely keep solar project lending to a $5 million maximum – the same as for its SBA loans.

“Our customers will be established developers asking for a loan to install solar panels. They will already have identified the land to buy or lease and negotiated a power purchase agreement with a power company,” Blanchard said. 

He added successful loan applicants will also have cleared zoning and environmental hurdles and have their design in hand, so they know how to configure their panels to
generate the maximum amount of energy.

Although its charter allows Live Oak Bank to lend in all 50 states and in U.S. territories, it may well start close to home. North Carolina ranks second nationally in solar development, Blanchard pointed out.

Anderson believes that renewable energy will be a “large vertical” for the bank because of the level of development activity.  

One driver is Congress’ recent renewal of federal tax incentives for solar. Blanchard noted another factor: the price of solar modules has fallen 80 percent over the last 10 years.

While Live Oak will launch its new vertical with loans for solar farms, it is looking ahead to possible lending in the areas of wind energy and battery storage, Blanchard said.