In recent news, it has become clear that global banks are failing to invest in renewable energy in any meaningful way. Last year they invested a massive 93 per cent of their energy funding into fossil fuel projects and only seven per cent into renewable energy projects. In contrast, at a local level, small-to-medium businesses continue to step up, with commercial investment in renewable energy growing across the board. The solar power market in Australia is expected to witness a compound annual growth rate of 20.56 per cent between 2022-2027 as businesses look to protect themselves from skyrocketing energy prices from fossil fuels.
Many of these renewable energy projects are self-funded but, let’s face it, not every SME has the funds to install an industrial-scale solar system tomorrow. That’s why a lot of renewable energy projects are now funded by green loans and specialty funders. Access to finance is a key factor in our transition to a greener, cleaner energy future. The good news is, there are a number of fintech companies out there making this easier for SMEs.
Why is small business uptake of renewable energy growing?
There are several factors at play. Inflation remains high, hitting 9.2 per cent in January 2023. SMEs are feeling the pinch from rising energy prices, interest rates and labour costs. Strategic small-business owners are looking to soften the blow when it comes to energy bills by installing renewable assets to generate their own clean power.
Secondly, in recent years there’s been a strong push towards decarbonization in the commercial world. This is being driven by two things: public perception and support of companies based on their green credentials, and risk implications. Companies without a plan to tackle climate change have a lower ESG profile and this means they are seen as being at a higher risk by potential investors.
How are businesses paying for this?
Commercial solar uptake in Australia is booming. Some businesses are paying for this from their savings, many are seeking financing to fuel their transition to green power without impacting cashflow.
Green loans are one place SMEs are turning. These are loans designed to fund projects with proven environmental benefits like commercial solar power, battery walls, electric vehicle chargers, and other sustainable assets.
This type of finance differs from traditional bank loans because it comes with stringent guidelines guaranteeing the funds will be used for environmental initiatives only. Green loans offered by major banks are often only available for existing customers and come with reporting requirements which can be a stretch for SMEs.
There are also alternative lenders which finance environmentally friendly projects with less red tape, making the process an easier proposition for busy business owners. They offer less paperwork, faster turnaround time and no reporting requirements. This type of agile, 100 per cent online green financing is taking off due to the faster, easier access it offers SMEs for green finance.
The outtake?
Businesses are caught between a rock and a hard place at the moment. Expectations are high for them to lead the charge on decarbonisation. Customers are voting with their dollars by supporting brands that they perceive as green. At the same time, costs have never been higher, especially for energy. Installing solar power is a no-brainer solution that solves both of these problems at the same time.
Green loans and specialty funders who invest in decarbonisation projects support real-world actions that produce real-world impact. By financing renewable energy transitions for small businesses, these lenders make it possible for their customers to lead the charge in reducing fossil fuel dependency (as well as their outgoings) at the same time.
