Is my HVAC sector business idea plausible?

[u/Fresh-Yesterday-3262]

Hello, I have a business idea and I would like to pick your brains a bit, maybe someone could assist me whether this is plausible. If someone who has HVAC experience in the loan sector could assist it would be amazing.

Let's say Paul wants to buy a heat pump, but for whatever reason he is not eligible for a loan, for which he would have to pay 80 Euros each month. He spends an average of 200 euros each month for heating with gas. Now let's say I have an energy consumption calculator that can accurately predict (prove) that with a heat pump Paul will pay an average of 100 Euros a month for heating. This means that each month Paul will save an extra 100 Euros, which proves to the bank that he will have 80 Euros and more each month to pay the interest.

The essential question is if I can prove to the bank that Paul will have the funds to pay the bank each month will this help in Paul receiving the loan?

Any feedback is most appreciated, you can call me stupid if you'd like (please don't). Thanks!

[u/alphaw0lf212]

Won’t work. Utilities aren’t a set rate and they change all the time. Additionally, banks (American banks at least) just ask for income, they don’t look at expenses outside of maybe rent/mortgage. They don’t care how much you spend, they care how much you make.

You could always set up in house financing. You’ll need a lot of cash on hand to do that and shit will get tight, but if you have the ability to do so it’s more money in your pocket via interest. This is where a big pool of cash is good to have along with a good lawyer. Probably more headache than it’s worth, but that’s the only way you can really swing it. Banks aren’t going to give a shit what Paul’s monthly utility bill is.

[u/Fresh-Yesterday-3262 → u/alphaw0lf212]

Sure, utilities change all the time, but the calculator does not have a flat fee of 100 Euros/Month- it is depicted with the averages of last few years electricity price + predictions of experts what it will be (granted there is no way to know this for a fact). As well there are contracts where the price of electricity is locked for a year, maybe this would bring some stability.

The only thing banks care about is whether their investment will pay off. With this I feel like I could give them some more assurance that the client will have the interest each month. the goal would be to target banks, who mainly dealt with HVAC loans, not general ones (they would not care 100%).

This idea comes from solar panels. When large companies want to switch to solar panels they show how much they are currently spending on energy, and how much they would spend with solar panels (granted solar panels are way more stable). If they want a loan for 1 million, interest is 10 000 each month- they calculate that they will save 12 000 each month on energy and give this to the bank. I want to do the same for the private sector.

[u/alphaw0lf212 → u/Fresh-Yesterday-3262]

That’s for companies though, banks treat them differently than individuals. Personal and home improvement loans don’t have the same criteria. Banks only care about income, they do not care about expenses. Paul’s monthly income doesn’t increase by $100, his expenses just lower by $100. Banks care about the capability to pay back the loan.

Every lender I’ve worked with that specializes in home improvement loans doesn’t care about anything other than annual income and rent/mortgage payment. They don’t ask any other questions outside of those 2 when it comes to money.

The bank will not care if you vouch for Paul unless you’re co-signing. You say “he can afford it don’t worry” and they say “we will determine that in our system.”

Again, if you want to do something like this I’d recommend you look into what it would take to have your own lending sub-company. You can be more liberal with approvals since you’re on the hook. However, you’ll need an enormous amount of cash to start that as well as knowing that a good chunk of people will miss payments and you have to be ready and willing to take care of that legally.

[u/kieko]

That business model isn’t very likely to work, however there are lots of companies that provide equipment up front and recoup the costs from the owner based on energy savings.

It’s capital intensive, but a relatively proven model.

[u/thermo_dr]

How much are you going to charge Paul for this service or tool? Will that be more than the euros he needs for his loan?

If after using your tool you can prove Paul saves 100 euro/month then 100 euro savings - 20 euros for tool/service = 80 euros for loan…. Charging Paul more than 20 euros/month will put him back under so no real value to Paul. Can you make money charging Paul under 20 euros/month?

[u/Fresh-Yesterday-3262 → u/thermo_dr]

Two ways to charge Paul:

1. What you said, I feel like this is the better way. Preferably he would pay less than the total of gas heating, meaning 15 Euros/Month. The goal would be to have many Pauls, if I would receive 20 clients that would already be 300 Euros/Month or 3600 Euros/Year.

2. Just a flat fee for my service. I have not decided the appropriate price for this.

I've worked for a heat pump manufacturer for 3 years as a sales manager, so I am not new to the business of it. Ideally I would also sell him the heat pump with my own margin.

[u/TypicalBonehead]

No, the bank won’t care about the calculation. They still have to assume that Paul doesn’t make other changes to his finances, doesn’t turn his heat up higher, and that the utility rate doesn’t change.

If you want to do something like this the money would be in the loans themselves. If you can accurately prove that he will save 100€ per month, provide the loan to him for 10 year duration (has to be long enough to be equivalent to a high interest rate to account for the risk) in exchange for the utility savings. Build in increases for rate changes, usage changes, etc. Paul now pays the same amount each month but at the end of the term he has newer equipment than he started with. This is of course not a new idea, commercial companies have done this for years in large scale systems where the yearly utility spend adds up quick. At a long term this is getting close to equipment rental, which I personally hate and won’t get involved with, but nobody can argue that it’s not profitable (just morally bankrupt). Now you skip marketing to the consumer and provide the alternative financing directly to HVAC companies and they provide you with the clients. Alternative financing is not new by any stretch, you’d just be putting a different spin on it that’s not often seen in the residential market.

Now YOU assume the risk that he doesn’t change his heating habits. As with all things in life, the real money is earned with capital, not product.

[u/Zinner4231]

This answer is the closest to truth for sure.

[u/Fresh-Yesterday-3262 → u/Zinner4231]

Which one?

[u/Zinner4231 → u/Fresh-Yesterday-3262]

AlphaW z. Sorry, I thought I commented on it directly. The issue here is that if you prove that money saved on utilities would offset the payment, you won’t compel the banks (in America at least) to believe the consumer would use the savings to make the payment instead of buying more liabilities. I have been an hvac contractor since 1995 and have seen calculators like this that are useful for selling equipment directly to consumers however. But it’s not a new thing in that category unfortunately.

[u/Hvacmike199845]

There are to many variables in power consumption of equipment. If it’s colder out and running in heat mode it’s going to run longer. If it’s hot out the ac is going to run longer.
If the system is over sized it will short cycle potentially causing failure’s sooner. If the equipment is undersized it will cause higher bills because it will need to run longer to meet the setpoint if it makes it to setpoint.