Profit Share Loans

What is a profit share loan?

Liz Mwangi avatar
Written by Liz Mwangi
Updated over a week ago

Trine is delighted to unveil the Profit Share Loan, our new offering designed to align your investments with attractive returns! Let us now embark on exploring the details of this exciting option together.

1. What is a profit share loan?

A profit share loan is a unique investment option that offers investors a share of profits generated by solar assets rather than a fixed interest rate. This potentially provides a more attractive return on investment compared to traditional loans while still providing the benefits of fixed tenor and the return of principal as a loan.

This works by acting like a traditional loan for the principal, i.e., the principal is returned over a fixed period on a fixed schedule; however, the interest on the loan is a proportion of the profits that the solar asset makes.

2. How does a profit share loan work?

Profit share loans work by providing funding for solar projects in a negotiated proportion of the total project cost. The profits or income generated from these solar assets are then distributed among investors, Trine, and the borrower according to the pre-agreed terms.

3. What is the average duration of a profit share loan?

Please check the loan offer page for more details. However, we aim to have a shorter period for the return of the capital and a longer profit sharing period.

A very small percentage of the capital is required to remain with the borrower until the end of the profit sharing period to ensure the instrument is still considered a loan.

4. How is my return on investment determined?

Unlike traditional loans with fixed interest rates, profit share loans offer returns based on a portion of the profits generated by the solar assets. The specific percentage of profit sharing is negotiated with borrowers to ensure competitive returns for investors.

For this reason, we can provide a confident estimate of the effective interest but we will not know exactly what it is until the period has passed. This is because it will depend on many factors, including how much the sun shines during each period.

Please note that we do not issue profit share loans where the estimate is too uncertain.

5. As an investor, how and when will I be repaid?

Investors receive repayments in two components: principal and profits. These components are disbursed quarterly according to the agreed-upon repayment schedule. Check the loan offer page for an expected repayment schedule.

Compared to our other loans, you can expect that there is a lower interest in the beginning and a higher interest later.

6. Does a profit share loan typically provide a higher return than a fixed-interest loan?

Profit share loans are designed to potentially yield higher returns for investors by customising profit-sharing arrangements with borrowers individually. Projects with low potential returns are generally declined during the initial evaluation.

7. Why are profits initially lower?

Initial profits may be lower because the cash generated by the solar assets is allocated to operational expenses, principal repayment, and profit distribution. As principal payments decrease over time, more cash becomes available for profit distribution, leading to higher income for investors.

8. Is a profit share loan riskier than a fixed-interest loan?

While profit share loans offer higher returns, they also come with higher inherent ‘time risk’. Returns are often concentrated towards the end of the loan term, as the principal is prioritised for investors. This ‘time risk’ is offset by the potential for greater returns compared to fixed-interest loans.

9. Does a profit share loan have the same environmental impact?

Profit share loans support projects that contribute to reduced carbon emissions, similar to other financing methods. The environmental impact remains consistent, regardless of the loan type. Impact details for each loan can be found on the investor's dashboard

10. Why would a borrower choose to share profits?

Borrowers may opt for profit share loans due to their flexibility in structuring repayment schedules. These loans also incentivize borrowers to retain a higher share of profits while managing the assets on-site, making them more appealing than fixed-interest loans.

11. Will I receive profits after the loan is fully repaid?

Yes, investors will receive profits along with the principal amortisation even after the loan is fully repaid, as per the terms mentioned on the loan offer page.

12. What is the minimum expected return or guarantee?

Profit share loans or any other loan do not guarantee returns, as all investments carry inherent risks. Expected returns are disclosed on the loan offer page but are not guaranteed.

13. What assurances are there of achieving higher returns?

Returns depend on factors like project performance and market conditions. While there is no certainty of higher returns, positive factors like increased solar yield or premiums generated on asset sales can potentially lead to higher profits.

14. What security is in place in case of default?

Profit share loans are secured with asset and equity pledges, similar to fixed-interest loans. In the event of default, assets may be sold to recover the loan, or a new solar developer may manage the assets in the same arrangement, thus not affecting the repayments.

15. What happens when a project is sold?

If a project is sold, the proceeds are used to repay the outstanding loan, and any remaining profit is distributed according to the agreed terms.

16. Is my return tied to a single project or a portfolio?

Investors' exposure is diversified across a portfolio of projects, reducing risk and providing returns from multiple sources. This means the returns are not tied to one single project but to a portfolio.

17. Where do the profits for solar assets come from?

Profits are generated from revenue received through power purchase agreements with off-takers who consume electricity produced by the solar assets. Operating costs are deducted from this income, resulting in profits.

18. How does currency fluctuation affect my investment?

Loans are typically made in Euro or USD but may convert to local currency in emerging markets. Currency fluctuations are considered in the investment model to calculate effective returns.

19. When will my returns start to accumulate?

The repayment schedule on the loan offer page specifies when returns are expected to begin.

20. What additional risks do investors face with profit share loans?

In addition to macro and micro risks, investors in profit share loans take on a "time risk" due to the concentration of profits towards the end of the loan term when the principal is repaid.

Did this answer your question?