Access to finance is becoming less of a barrier for commercial and industrial (C&I) consumers looking to adopt rooftop solar and other renewable energy solutions, as banks expand financing options tailored to different borrower categories.

Rising grid electricity tariffs are also strengthening the economics of rooftop solar. For commercial consumers, in particular, electricity can account for a significant share of operating expenses. Reducing grid power consumption by opting for solar can lower operating costs and improve profitability, according to T Aravind Rao, Deputy General Manager at IDBI Bank.

“Financing options are available for individuals, housing societies, farmers, micro, small and medium enterprises (MSMEs), and large companies seeking to install solar projects.”

However, the availability of financing does not automatically make every project bankable. Project viability, appropriate system sizing, the borrower’s credit profile, and repayment capacity remain central to lenders’ assessments.

Businesses should install solar capacity aligned with their electricity requirements rather than oversizing projects. A system substantially larger than the consumer’s requirements can weaken the project’s financial viability and make financing more difficult.

“Business units should go for a system size which is suitable for their requirements. Not less, not more. That would help them get better financing options and faster,” Rao said.

Credit Rating Determines Borrowing Cost

At IDBI, interest rates for such loans can range from 8.5% to 12.5%, depending primarily on the borrower’s credit rating, Rao said.

Lenders assess several factors when determining a borrower’s credit profile, including management quality, financial strength, promoter capital, liabilities, operating costs, the company’s products and markets, and business cycles. A stronger credit profile can lead to lower borrowing costs and better access to larger loans.

Credit history also plays an important role in the initial screening of loan proposals. Banks examine credit information reports, repayment capacity, and past repayment behavior before proceeding with an application.

Beyond credit history, lenders evaluate whether the business generates sufficient cash flows to service the proposed debt. Promoter investment, retained earnings, outstanding liabilities, unsecured borrowings, market prospects, and growth potential can all influence the assessment. For businesses led by older promoters, lenders may also consider whether an adequate succession plan is in place.

The financing decision, therefore, extends beyond the economics of the solar installation itself. The financial strength of the underlying business can influence the amount a company can borrow, the interest rate it receives, and the collateral required.

Loan Tenure and Collateral

Solar loans for MSMEs generally have repayment periods of five to seven years, although the tenure can vary depending on the borrower category, project economics, and the business’s income-generation cycle.

Collateral requirements can also vary based on the borrower’s financial profile and existing relationship with the lender.

For existing IDBI-financed businesses, securities already provided to the bank can generally be extended to solar loans without requiring additional collateral. For new businesses requiring broader capital expenditure and working capital financing, collateral requirements can be around 40% to 50%.

However, Rao said financially strong borrowers and viable projects may qualify for financing without additional collateral, including through applicable credit guarantee mechanisms. For smaller MSMEs seeking rooftop solar financing as part of their broader funding requirements, the bank generally does not seek additional collateral.

Loan processing times also depend on the financing amount and the level at which approvals are required. Smaller proposals can be processed relatively quickly, while larger loans requiring ratings, corporate office approvals, or consideration by multiple committees can take longer.

For an MSME project involving expenditure of around ₹50 million (~$522,482), financing could typically be processed within two to three weeks after the required documentation is submitted.

Solar Financing Expected to Grow

Rao expects solar financing to increase significantly over the coming years as electricity consumption and costs rise.

Higher electricity costs strengthen the case for consumers to generate more of their power on-site. For businesses, the initial capital expenditure associated with rooftop solar can be recovered over time through savings on electricity bills, improving the ability of projects to support debt repayment.

Residential electricity consumption is increasing partly due to the adoption of electric vehicles, which can push consumers into higher tariff slabs and strengthen the case for rooftop solar. MSMEs are similarly recognizing solar’s potential to reduce electricity expenditure and operating costs.

For C&I consumers, this relationship between electricity savings and financing is particularly important. Lower power costs can improve operating margins, while solar savings can help offset loan repayments. Once the debt is repaid, a larger share of the electricity savings flows directly to the business.

This makes the economics of the underlying project critical. A correctly sized system can improve savings and repayment visibility, while an oversized installation can increase capital requirements without generating a corresponding improvement in financial returns.

Avoiding Over-Borrowing

One of the most common mistakes businesses make is borrowing more than they require, Rao said.

Excess borrowing increases interest and repayment obligations without necessarily generating corresponding income. For rooftop solar, the same principle applies to both borrowing and system sizing. Installing capacity substantially beyond a company’s requirements can increase capital costs and debt obligations without delivering proportionate savings.

He emphasized the importance of financial discipline, advising businesses to align financing with their actual investment requirements.

Banks are also prepared to finance investments; companies may need to meet sustainability-related requirements in their export markets, Rao said. Businesses should first assess the investments required to comply with regulations in their target markets and then approach lenders with clearly defined financing requirements.

The growing availability of green financing means access to capital need not be the primary obstacle to rooftop solar adoption for financially viable businesses. However, obtaining financing on favorable terms ultimately depends on matching project capacity and borrowing requirements with electricity consumption, cash flows, and the borrower’s ability to repay.

These views on MSME financing and green loans were shared at Mercom India’s C&I Clean Energy Meet held in Hyderabad during a session titled ‘Attractive Financing Options: Easy and Affordable Green Loans.’

The next Mercom India C&I Clean Energy Meet will be held in Vizag on September 25, 2026.