Sustainable practices have moved beyond being a major focus of larger businesses in Britain; the smaller and mid-sized business sector is now also investing into greener business operations. Small to medium-sized enterprises are investing more and more into sustainable business practices, whether by moving to greener locations, installing renewable energy technology, updating existing equipment or expanding to meet growing demand for environmentally-friendly products and services.
While there is a strong desire to grow in a sustainable manner, SMEs face significant challenges in financing these sustainable business goals.
The demand for investing in sustainable business
There is now increased demand from consumers, supply chain partners and regulatory authorities for more environmentally-friendly businesses than ever before. For SMEs, this demand generally results in requiring greater energy efficiency, reduced waste, decreased carbon footprints and the use of more sustainable supply chain materials.
Some ways small to medium sized enterprises (SMEs) can expand their operations include:
- Adding solar panels or heat pumps
- Retrofitting older commercial buildings
- Increasing their warehouse space for sustainable distribution
- Buying low-emission vehicles
- Launching new “green” product lines
Implementing these types of projects can help SMEs save on operating expenses over the long-term and build credibility within their brands; however they often require significant upfront capital. Some SMEs may never have access to cash flow to fund implementation of improvements, despite having profitable operations.
For SMEs, the ability to fund new growth is correlated with their cash flow. Unlike large corporations, most SMEs do not have large amounts of available capital. Therefore, timing is critical for SMEs to grow their operations due to existing revenues, seasonal cycles, and outstanding invoices. This creates a gap between identifying a growth opportunity and being able to comfortably finance that growth opportunity.
For example, a manufacturer may want to purchase new equipment to increase the efficiency of their manufacturing processes; however they must do so without straining their working capital prior to their high volume sales period. Likewise, a retailer wanting to move into a more sustainable facility must be able to secure a lease or purchase prior to the sale of their current location.
In situations like these, many businesses turn to flexible funding solutions, such as short-term business loans to cover short-term gaps, rather than committing to a long-term debt structure which may not be suitable for a short-term project.
Acting quickly on green opportunities
Timing can be of the essence when it comes to green expansion initiatives. There could be a window of opportunity for the receipt of grants and incentives from local authorities. There could also be a high demand for commercial property with a good green rating or the need for rapid changes to the supply chain.
If timing is of the essence, then SMEs could benefit from funding within a matter of days rather than weeks. This could be the case in property transactions, where the speed of acquisition of a site could be critical if the green business expansion is to happen at all.
For such instances, a 48-hour bridging loan could be used.
Government incentives and alternative funding
In addition to alternative funding, green business expansion initiatives could also consider the following government incentives:
- Government loan schemes
- Regional growth funds
- Energy efficiency grants
- Asset finance for low emission equipment
- Invoice finance
Diversification of funding can help spread risk and minimise overall cost of funding. More and more, businesses are seeking the advice of financial experts and structuring funding around the project’s lifespan rather than a single funding package.
Planning for sustainable growth
Money is nice, but its smart planning that serves as the backbone for green growth. For small and medium enterprises, the questions get down to the practical:
- How much in energy would be saved, and what kind of ROI could one hope to see?
- What about cash flow during the roll-out?
- Are there any regulatory changes impending that may affect you?
- Most important, is the market demand for sustainable products or services actually present?
Growth driven by sustainability isn’t realised immediately, over time it can give you a real edge by enforcing stronger operations, trading resilience, and greater trust between stakeholders and clients.
Environmental standards continue to evolve, and SMEs will be more than likely better placed for markets with a growing focus on sustainability if they can move quickly and finance improvements in an efficient manner.
Flexible funding used wisely and strategically can be a pivotal driver in helping turn green ambitions into concrete actions.
