Green energy loan for small business: what it is and where it exists

"Green energy loan" turns up in search results for products with very different rules. A bank may use it for a household top-up, a lender may use it for a business loan, and a public scheme may use it for a discounted rate. For a UK small business the useful reading is narrow: a green energy loan is a business loan whose money must go on clean-energy equipment, usually generation such as solar panels, storage such as a battery, or the charging equipment that goes with them. This guide sets out what that means in practice, where such loans exist, and what to check before you sign.

What counts as a green energy project

The Green Loan Principles list renewable energy, covering production, storage systems, transmission, appliances and products, as an eligible category, alongside energy efficiency and clean transportation including infrastructure for clean energy vehicles. The Principles are voluntary guidelines, so each lender decides how strictly to apply them. The British Business Bank says green loans to smaller businesses are typically restricted to sustainable activities such as investment in renewable energy, green buildings and pollution prevention, and that some require security such as business or personal assets.

Where green energy loans exist for small businesses

• Commercial lenders. This is where most small businesses in England will deal. Expect the lender to treat the loan like any other business loan with an extra condition on use. Our green energy loan page covers the mechanics of a loan-funded system.
• Wales. The Development Bank of Wales Green Business Loan Scheme offers discounted fixed interest rates and lists solar PV among eligible projects, for Wales-based firms trading for at least two years with at least one set of filed annual accounts.
• Scotland. Business Energy Scotland's SME Loan lists loans up to £100,000 but its page says it is not accepting new applications for solar PV projects. Check the position before you plan around it.

Do not assume a household scheme is open to a company. The Warm Homes Loan Scheme, for example, lets lenders lend only on a personal lending basis to owner-occupiers and private landlords, and its rules say lending to business or special-purpose vehicle type structures will not be allowed.

Is a green energy loan cheaper?

Not by definition. The label describes what the money is for. The rate depends on the lender's own policy, the repayment period and any collateral, and a fixed rate does not change while a variable rate follows the lender's response to Bank of England decisions. Ask each lender whether its green product changes the rate, the term or the security it takes, and compare offers on the total amount repayable, not on the headline rate. The guide to a green loan for small business sets out who lends and how the Growth Guarantee Scheme works.

What a lender will want to see

Lenders use profits and assets to understand a business's ability to repay. Bring recent accounts, a dated supplier quote and the installer's estimate of the annual saving. A business using the cash basis should know that a bank could ask for accounts drawn up on the traditional basis before agreeing a loan.

Cash flow and tax

Interest on a business loan is an allowable expense; repayments of the capital are not. The equipment itself qualifies for capital allowances on its original cost, and all capital spending on solar panels is designated special rate, which can still qualify for the 100% Annual Investment Allowance of £1 million per accounting period. Before you borrow, run the saving against the repayments with the cash-flow test on solar loans for small business.

Questions business owners ask

What is a green energy loan?

A business loan whose proceeds must be applied to clean-energy equipment such as solar panels or battery storage. The Green Loan Principles list renewable energy, including storage systems, as an eligible category.

Is there a government green energy loan for businesses in England?

We found no public green loan for business solar in England at the time of writing. The Development Bank of Wales runs a Green Business Loan Scheme in Wales, and Business Energy Scotland's SME Loan was not accepting new solar PV applications when we read it.

Can a limited company use the Warm Homes Loan Scheme?

No. Its scheme rules allow lending only on a personal lending basis to owner-occupiers of existing homes and private rented sector landlords, and say lending to business or special-purpose vehicle type structures will not be allowed.