With all UK SMEs needing to decarbonise by 2050, Green Finance is becoming recognised as a critical pathway to funding Net Zero.

Whilst most SMEs understand the importance of transitioning to Net Zero, many lack the working capital to implement sustainable changes.

It’s no secret that consumers are increasingly looking to support businesses that are environmentally friendly. Taking action early will not only reduce your carbon footprint, but it may also give your business a competitive advantage by enhancing its appeal to customers, stakeholders and future investors. Not to mention the benefits of getting ahead of future regulations.

In this article, we explore how businesses can use external finance to drive sustainable practices in business and what steps you need to take to be in a position to apply for funding to support your green objectives.

Net Zero Funding

Net Zero Funding – Finding a starting point

The first step in your transition to Net Zero will be understanding the impact your business is currently having on the environment. By understanding its current situation, you can begin identifying areas to improve.

A good place to start is with your carbon footprint, which measures your carbon emissions. There are many tools out there to help you measure your carbon footprint. We would recommend using the SME Climate Hub calculator.

Once you know where your business currently stands, you can start to formulate a roadmap to Net Zero.

The Business Climate Hub offers a free tool to create sector-specific Net Zero plans tailored to your business.

Green Investment

Net Zero Funding – Key Areas to Invest in

Typically, there are 6 key areas to invest in. However, every business is different, and these areas may look vastly different to different industries.

Energy Usage & Renewables: Greenhouse gases emitted from buildings account for a large percentage of the overall global emissions. Retrofitting your workplace building with energy-efficient materials and technology will help to reduce energy consumption. Although this will require a large investment, it has the potential to save a significant amount of money in the long run.
Transportation: Reducing transportation emissions will go a long way to support your journey to Net Zero. We have seen a number of customers using funding to switch to Electric Vehicles (EVs) to help reduce their emissions. Whilst the initial cost of an EV can be high, it’s always worth considering the whole life cost of vehicles. Charging an EV is cheaper than conventional fuel and therefore an EV could work out to be cheaper in the long run. In fact, the Department for Transport estimates EVs to have a lower cost after 4 years.
Investing in energy-efficient machinery and equipment can be a big win for those looking to reduce their carbon footprint. Although new machinery will certainly be high cost, you will save money in the long-term with more efficient processing, all while reducing your energy consumption.
Supply Chain:
Creating a greener supply chain is another effective way to reduce your carbon footprint. Supply chains will look different for each business. Making them greener could mean small changes, like discussing your options with your current suppliers to tweak elements or a complete overhaul. It’s always worth speaking with your current suppliers to find alternatives before finding new suppliers. But there’s no doubt that making changes to your supply chain will take time, effort and money. It is, however, an extremely worthwhile area to invest in. Besides, if you don’t do it now, you may be forced to do it later. It’s always good to get ahead of the game.
The SME Climate Hub has an excellent guide on how to make your supply chain more green.
The government is expected to continue tightening rules around waste regulations, in accordance with the Resource and Waste Strategy. This includes making all plastic packaging recyclable or reusable by 2025. Redesigning and implementing new packaging may require significant investment. But, again, this is another scenario where you can invest now and reap the benefits later.
Waste & Recycling: Another objective from the Government’s Resource and Waste Strategy includes eliminating all avoidable waste by 2050. Reducing waste by following the three R’s mantra of Recycle, Repurpose, Reuse will help you reach this objective. However, this would not require significant investment. We have seen some businesses take an innovative approach to waste and recycling by investing in biomass boilers which release significantly less emissions than fossil fuels. Biomass boilers are fuelled with waste materials, such as wood, plants, or even manure. This investment can help two-fold as not only will you save money on your heating, and you’ll also be reducing the waste going to landfill. You may also be able to help others reduce waste to landfill by using their waste.

Where to get Net Zero Funding

The type of Net Zero funding you will need will depend greatly on your business’s situation and what you need the funding for.

It’s important to remember that even though there are many financial products in the market now that are labelled as ‘Green’, any form of finance can be green, as long as you are using it for green purposes.

Grants can be beneficial, and your local council will be able to tell you about the grants available in your region. Applying for grants can be time-consuming, so bear this in mind when deciding which funding route to take.

If you need larger amounts of funding, debt finance can be a useful tool. We would always recommend that small businesses approach their banks first.

For those unable to source funding from their banks, Community Development Finance Institutions (CDFIs), like SWIG Finance, exist to support small businesses that can’t get access to funding from traditional sources.

Approaching a lender

Approaching a Lender for Net Zero Funding

When approaching a provider for Net Zero funding, you should be able to clearly explain why you need the funding, what you will use it for, and how these changes will drive your business success going forward.

Determining the level of funding you need is often a challenge for small businesses. The key to this is research.

For example, if you need to invest in an electric vehicle as part of your net zero objectives, research the overall cost and what it will cost to run each month. Don’t forget to factor in wear and tear and try to predict any other additional costs that will crop up. For example, servicing and maintenance in the first year. Once you have reached a figure, add a small contingency.

Be sure to make your costs as realistic as possible, this will show leaders that you are credible.

It’s also worth noting that when you are approaching a lender, it is best to be fully prepared. Find out in advance what documents you’ll need to share so that you can get everything in order. Remember to check your personal credit score to avoid any surprises.

If you are considering approaching a lender for funding, check out our guide on How to Get a Business Loan.

SWIG Finance Net Zero Funding

As a CDFI, SWIG Finance exists to support financially excluded small businesses to grow when the bank has said no.

We don’t rely on automated credit scoring to assess our applications, each business is evaluated on its own merit. This means that we can lend to projection-led businesses that demonstrate strong growth trajectories.

Our business managers take the time to understand where your business is now and where it’s heading. We employ a relationship-based approach and we assign each customer with a dedicated business manager who will work with you to prepare your application.

You can find out more about our Business Loans by visiting our dedicated webpage.

About SWIG Finance

SWIG Finance is a non-profit company that supports viable South West businesses that can’t secure sufficient funding from their bank. By empowering underserved small businesses to overcome their financial barriers, we are working to create a more balanced financial ecosystem.

We’re growing every year. In 2022/23, we lent £14m to 478 businesses, helping to create and secure over 1,000 jobs and generate £44.6m in social impact. Download the report here.

If you’d like an informal chat about your funding requirements, get in touch with our friendly and professional team to see how we can help: info@swigfinance.co.uk / 01872 227 930.