Green loan for small business: how it works in the UK

Green loan for small business: the short answer

A green loan for a small business is a loan whose money has to go on something with an environmental purpose, such as solar panels, a battery, LED lighting or an electric van, rather than on general trading. That is the whole definition. It is not a government scheme, it has no fixed interest rate, and a lender can call almost any product green. What makes a loan "green" is where the money goes and how the lender checks it, not a lower price. This page explains what counts, who lends, what security to expect, how the Growth Guarantee Scheme changes the risk, and how the tax treatment works for a UK limited company, sole trader or partnership. It is general information from an independent publisher, not a recommendation of any lender and not financial or tax advice.

What makes a loan "green"

The market has a shared reference point. The Green Loan Principles, published by the Loan Market Association and its partner bodies and last dated 26 March 2025, describe a green loan as any type of loan where the proceeds are applied exclusively to finance, refinance or guarantee eligible green projects, and which follows four core components: use of proceeds, project evaluation and selection, management of proceeds, and reporting. The eligible categories include renewable energy (production, storage systems and appliances), energy efficiency and clean transportation including charging infrastructure. The Principles are voluntary guidelines, so a bank is free to apply them loosely or in its own way.

For a small business that translates into something much simpler. 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. Expect to be asked for a quote or invoice for the equipment, and expect the lender to want evidence of what the money bought. Lenders also sell the same product as a green energy loan.

Green loan, sustainability-linked loan and ordinary loan

Product	Where the money goes	What changes the price	Fit for a rooftop array
Green loan	Only eligible green projects	Lender's normal pricing; some offer a discount	Yes, if the lender lists solar PV
Sustainability-linked loan	Usually general corporate purposes	Margin moves if you hit agreed sustainability targets	Not tied to the project, mostly larger borrowers
Ordinary business loan	Anything the agreement permits	Your credit profile, term and security	Yes, and often the easiest to get

A sustainability-linked loan is a different instrument. Its use of proceeds is not what defines it, and in most cases it is used for general corporate purposes, with the margin often reduced when a sustainability target is met. For a firm that simply wants to put panels on its roof, an ordinary business loan or a green loan with a clear use of proceeds is usually the product to compare. Our guide to the green loan vs business loan sets the two side by side for solar, and the business solar loan page covers the lending route in more detail.

Who lends, and the schemes with conditions

Green loans for small businesses come from high-street and challenger banks, specialist lenders and, in some nations, public bodies. Two public examples show how different the conditions are, and how quickly they change.

• Wales. The Development Bank of Wales Green Business Loan Scheme offers discounted fixed interest rates on green business loans and lists solar PV under renewables. Limited companies, sole traders and partnerships must be based in Wales and trading for at least two years, with at least one set of filed annual accounts.
• Scotland. Business Energy Scotland's SME Loan offered loans up to £100,000, but its eligible measures list did not include solar PV when we read it in September 2026, and its page says the scheme is not accepting new applications for solar PV projects. Check the current position before you plan around it.

England has no equivalent public green loan for business solar at the time of writing. A household-style scheme such as the Warm Homes Loan Scheme does not help a business: its rules allow lenders to lend only on a personal lending basis to owner-occupiers of existing homes and private rented sector landlords, and say that lending to business or special-purpose vehicle structures will not be allowed. A business buying solar should therefore expect to deal with a commercial lender.

The Growth Guarantee Scheme: what it does and does not do

If a lender is unsure about your security, ask whether it can use the Growth Guarantee Scheme (GGS). The British Business Bank describes it as giving the lender a government-backed 70% guarantee against the outstanding balance of the facility. Your business remains 100% liable for repayment, so the guarantee protects the lender, not you. The scheme covers term loans, overdrafts, asset finance and invoice finance, up to a maximum of £2m, and lenders range from high-street and challenger banks to asset-based and specialist local lenders. Lenders should only offer finance through the scheme if they cannot offer a facility on equivalent or better terms without the guarantee.

Two practical points matter to an owner-manager. Lenders may take personal guarantees on facilities of any size if that is their normal practice, but they cannot take your principal private residence as security under the scheme. And the scheme limits lenders' upfront fees, including broker fees, to a maximum of 5%. Neither point lowers your interest rate; they limit what a lender can ask for in return for lending.

Security, personal guarantees and what the rate depends on

The British Business Bank says a personal guarantee is usually required for unsecured business loans, and that unsecured loans tend to carry higher interest rates than secured ones because the lender takes more risk. If the business cannot pay, personal assets such as a home, car, savings or investments can be used to settle the debt. For a limited company that is a major change in who carries the risk, so read any guarantee clause with your solicitor before you sign. The rate itself depends on the lender's own policy, the repayment period and any collateral. A fixed rate does not change; a variable rate moves with the lender's response to Bank of England decisions. We do not quote typical rates here because they differ by borrower and move often: get at least two written offers on the same loan amount and term.

Tax: what you can claim on a loan-funded system

Borrowing does not change the tax position on the equipment itself. A business that buys solar panels with a loan owns them and can claim capital allowances on the original cost, not on the interest or charges. HMRC designates all capital spending on solar panels as special rate; that spending can still qualify for the 100% Annual Investment Allowance, which is £1 million for each accounting period, claimed in the period the item was bought. Our guides to capital allowances on solar panels and the Annual Investment Allowance explain the claim in full.

The loan itself is treated separately. Interest on a business loan is an allowable expense, but repayments of the capital are not, so you must not deduct the monthly payment as a whole. A business using the cash basis should also know that a bank could ask for accounts drawn up on the traditional basis before agreeing a loan.

Is the loan regulated?

Many small business owners ask whether a business loan carries consumer protections. Credit of more than £25,000 entered into wholly or predominantly for the purposes of a business is an exempt agreement under the regulated activities order, and a signed declaration that the loan is for business purposes creates a presumption unless the lender knows or has reasonable cause to suspect otherwise. Smaller loans to sole traders and some partnerships can fall inside consumer credit rules, so ask the lender how it treats the agreement.

What a lender will want to see

Lenders look at profits and assets to judge ambition and ability to repay. For a solar loan that usually means recent accounts or management figures, a dated supplier quote, the expected annual saving and the repayment schedule side by side, and the details of any security offered. Our payback and ROI guide shows how the saving is built up, and the finance calculator page lets you test a loan against your own numbers.

If the loan does not fit

A loan puts the cost on your balance sheet and often needs security. If that is the obstacle, other routes spread the cost differently: hire purchase, no-upfront-cost arrangements, or a energy-as-a-service contract that moves the equipment off the buyer's books. A loan is only one way to fund solar, and the funding routes comparison compares every route on the same page.

To compare lenders on a like-for-like basis, ask each for the same four figures in writing: the total amount repayable, the interest rate and whether it is fixed, any arrangement or early-repayment fee, and what security or personal guarantee is required. Then run those figures through the cash-flow test on our page about solar loans for small business before you decide.