Existing financing programs offer a number of important lessons on effective program design. Some characteristics of strong financing programs drawn from past program experience are described below.

Engage Contractor Networks

The programs with the highest volume of loans have strong contractor networks and regular program communication with those contractors. Significant time and effort are often expended to make sure the contractors understand and feel comfortable with the program. After all, they are often the ones explaining it to customers and helping customers fill out loan application forms. Some programs also require expertise-based certification. For example, the New York State Energy Research and Development Authority requires its residential contractors to receive certification through the Building Performance Institute's diagnostics-based training program endorsed by the U.S. Department of Energy's and U.S. Environmental Protection Agency's Home Performance with ENERGY STAR® program.

Carefully Manage Costs and Scale

Program costs can vary based on the types of services offered, how well the programs are run, and volume of the program. Important indicators of program costs are the ratio of audits to installations, and the ratio of loan underwriting to loan acceptance—the higher the conversation rate to installations and loan acceptance the better. One option to reduce these costs is to charge for audits. Another way of weeding out those who are not serious about making improvements without charging for an audit, which may be a barrier to participation for some, is requiring a preliminary loan qualification as part of program intake. Other expenses, such as the costs of complying with consumer and commercial lending laws, must also be considered.

Make it Easy for Customers and Contractors

A streamlined application process is important to both the customer and the contractor. Any burden for the customer or delay in paying the contractor can create challenges. Many programs offer quick application processing, often with approval over the phone for unsecured loans (loans secured by the property take longer) to address these types of challenges. On the back end, it is important to get the payment to the contractor as soon as possible. Several programs deposit the funds directly into a contractor's account as soon as the customer signs the certificate of completion.

Get Support from Organizations and Leaders the Customer Trusts

The sponsorship or other supportive involvement of trusted third parties often plays a key role by helping reduce information barriers and transaction costs, or providing some measure of quality assurance. Some programs train and mentor their contractors, and provide quality checks and information to customers. These types of services encourage those who might not feel comfortable doing this work on their own, give the customer recourse in the event of a complaint, and increase the quality of the energy improvements. However, they also come with a higher price tag, due to the staff time required. Getting trusted groups, such as local leaders, local government, nonprofits, faith-based organizations, and schools to endorse a program or be actively engaged may be another way to increase interest in a program.

Manage Risk

Default rates for clean energy financing programs have been low, typically less than 5%. These low default rates may be a result of careful underwriting in some programs and the fact that the improvements actually reduce borrowers' day-to-day expenses, thus making loan payments affordable. To some extent the low default rate may also be attributable to early adopters who are altruistically motivated to reduce their environmental impact. However, it is unlikely that clean energy lending has a long or strong enough credit history to attract a significant number of private investors to lend to some market segments without additional credit enhancements, such as loan loss reserves and loan guarantees. Attracting additional private capital with these credit enhancements can be important to leveraging limited government funds.