How smaller businesses could finance their sustainability journey

Smaller businesses could benefit from investing in sustainability and financial support is available.

In this article, we talked to Tony Greenham and Sabrina Iavarone from the Sustainability Team at the British Business Bank about these benefits and finding the right financial support.

Tony Greenham, Managing Director of British Business Bank’s Sustainability Team

Sabrina Iavarone, Sustainability Manager atBritish Business Bank

Sabrina Iavarone, Sustainability Manager, British Business Bank

The UK Government established the British Business Bank (BBB), a state-owned development bank, in 2013.

The BBB’s mission is to:

drive sustainable growth and prosperity across the UK
enable the transition to a net zero economy, by supporting access to finance for smaller businesses

BBB does not for the most part provide finance directly to smaller businesses. Instead, it collaborates with other financial organisations to widen access to capital.

How can smaller businesses benefit from investing in sustainability?

There are multiple financial and business benefits from becoming more sustainable. More than 73% of businesses in the UK Net Zero Census 2024 said they are prioritising transition to net zero carbon emissions.

There are four emerging reasons for this:

Companies could improve their reputation and strengthen their brand, which, in turn, helps attract investors and recruit and retain talented staff.
With the net zero economy growing much faster than the rest of the economy, businesses could benefit from new market opportunities for growth and increasing market share.
Businesses could build their resilience. Sustainable practices help companies manage climate-related physical and market risks and comply with present and upcoming regulation.
The net zero transition could make it possible for businesses to reduce costs.

What financial support is available to help SMEs become more sustainable?

It is essential to get professional, independent financial advice. There is no one-size-fits-all finance suitable for all businesses, and there is no guarantee that businesses might access funding.

For public funding, the UK Government’s Find a Grant scheme is constantly updated. This scheme might be a good place to start.

Similar schemes might be offered by the Scottish, Welsh, and Northern Irish administrations, as well as local councils.

Businesses planning to launch a green product or service might be eligible for Research and Development (R&D) tax relief.

The UK Business Climate Hub provides an extensive list of sources of public financial support available across the UK.

New businesses might also be eligible for a Start Up Loan.

Many high street banks and non-bank lenders also offer green loans and sustainability-linked lending to support sustainable businesses or those seeking to become more sustainable.

For example, helping businesses replace assets or equipment that have a high carbon footprint with a more energy efficient alternative.

What factors should small businesses consider when choosing the right financial tool to fund their sustainability journey?

The type of funding available depends on a wide range of factors, including:

the amount of finance needed and why
sector: some industries have more stringent regulation due to higher environmental impact
location: many country and regional governments offer resources to transition to net zero
the company’s performance and assets

The first factor businesses should consider is the reason for finance.

Innovative businesses might want to launch new products.

Other firms might want to tap into new markets, for example, by helping staff to develop new skills. This would open up offering additional services, attracting more clients and revenue streams.

Other businesses might want to adapt to meet changing client demands and government regulation.

All of these factors allow lenders to understand a company’s ambitions and ability to repay.

Can you talk us through some cases that show how companies can find resources to finance their sustainability journey?

Case study 1: Let’s explore the example of a young innovative company developing a new product to measure and report Greenhouse Gas (GHG) emissions.

The company’s product has the potential to disrupt the existing market and could see strong growth if it gains traction.

Given its young age, the company lacks steady cashflows and a financial track record, which could make it unsuitable for debt finance.

However, the potential for strong growth might be attractive to equity investors.

The company could consider a few sources of funding:

Angel Investors: these are individuals who invest in start-ups and young companies and sometimes also provide advice and guidance.
Venture Capital: if the company is close to commercialising its product and has a high growth potential, venture capital firms can invest larger sums of money. These firms usually provide expertise and advice to the founders and managers on successfully launching products and rapidly scaling the business.
Equity Crowdfunding: online platforms that allow companies to raise smaller amounts from a larger number of individual investors.
Grants: several grants are available for research and development, particularly in sustainability.

Case study 2: Another example would be a plumbing company that wants to train their staff to install heat pumps to meet increased customer demand.

As an established company in a more predictable area of business, they could consider using debt products such as:

Term Loans: the company could borrow money from a loan provider such as a bank and then pay it back with interest over an agreed period.
Invoice Finance: the business could sell or borrow against their unpaid invoices, giving them access to the money before invoices are paid.

Case study 3: A landlord wants to install solar panels on the roof of their property to reduce energy costs.

Purchase of an asset, namely solar panels, is well suited to asset finance products:

Asset-Based Lending: the landlord could secure finance against its existing assets, including invoices, but also machinery, property, and even intangible assets such as Intellectual Property (IP) rights like patents, designs, software and brands.
Leasing & Hire Purchase: the landlord could use Leasing and Hire Purchase to buy specific assets, like solar panels. In hire purchasing, the buyer gets ownership of the asset after paying for it in instalments. In leasing, the buyer owns it from the start, but the lender retains rights to take the asset if it needs to recover any unpaid debt.

Can you take us through some real life examples where the British Business Bank has helped small businesses with their sustainability goals?

Thanks to its delivery partners, the British Business Bank has supported funding for many small sustainable businesses over the years.

Through Maven Capital Partners, the British Business Bank supported Power Roll, a solar energy pioneer, as part of the Northern Powerhouse Investment Fund II.

The £1.5 million funding will allow the company to commercialise their innovative solar product and open the door to harnessing the power of solar energy in previously unreachable areas.

Another success story is Transcend Packaging, a leading sustainable packaging manufacturer.

The Bank’s delivery partner, SFC Capital, participated in a £7.5 million fundraise to increase the company’s manufacturing capacity and support its growth.

Why can finance become a challenge for small businesses who want to pursue sustainable business models?

Our latest SME Finance Survey identified current economic conditions as one of the main obstacles preventing businesses from becoming more sustainable.

In a recent report by UK Finance on Unlocking the SME Net Zero Transition, business leaders also reported a lack of actionable guidance and a proliferation of advice sources, making it challenging for firms to identify trustworthy information.

The business environment represents an obstacle especially for smaller businesses, who from previous surveys appeared less likely to seek finance and more concerned about their ability to repay.

We need to do everything possible to raise awareness and increase engagement from the smaller business community.

Small businesses are crucial to lead the country to net zero.

99.8% of all UK businesses fall into the SME category, accounting for a third of UK’s Greenhouse Gas (GHG) emissions and half of all business emissions.

Providing reliable information on sustainability funding is critical.

We are committed to helping smaller businesses understand the options available and financing small businesses’ transitions, so that we can build a greener, more competitive, and more resilient economy.

Relevant links:

British Business Bank:

UK Business Climate Hub:

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