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Businesses could be squeezed out of Green Deal loans

Green finance news – by Louise Bateman
23rd February 2012
Some businesses could find they can't access the Green Deal because of a lack of lending support, according to a financial expert helping to deliver the multi-billion pound green home makeover scheme.
Medium-sized companies are at risk of not qualifying for loans under the Government’s flagship energy efficiency programme, according to Paul Davies, a partner at PwC. Davies is co-coordinating the Green Deal Finance Company (GDFC), a not-for-profit mutual aiming to provide cheap Green Deal loans to homeowners that want to invest in energy efficiency improvements.

Davies told GreenWise there was a "risk around the middle ground" of the small to medium-sized enterprise (SME) sector of qualifying for Green Deal loans because these companies were too big to qualify for GDFC loans, but too small to get loans from the banks. 

"The Green Deal Finance Company is first and foremost focused on the home market. We are not setting ourselves up as a bank, so what we don’t have is a big process to do credit evaluation. We will be relying on the credit and collection and legal processes [of our members]. Those are clear with the household market and with smaller SMEs. They have much of the same characteristics as the household market," he said. 

"Where we break down is with larger corporates and significant exposure – they will be the domain of the banks."

And Davies added that larger SMEs could find themselves in a "situation where they are too big to have characteristics of householders but too small to have the characteristics of big corporates."

But Davies said larger SMEs shouldn’t find themselves squeezed out of the Green Deal market, if lending institutions come forward to fill the gap. "There is an obvious opportunity there for some banks to focus on [this sector]," he said.

Project Merlin
He said the big five banks could provide Green Deal loans to businesses that don’t qualify for GDFC loans under Project Merlin, which has been set up to make it easier for smaller firms to get access to credit. The Big Five banks – Barclays, HSBC, Lloyds Banking Group, RBS and Santander UK – have failed to meet their targets for lending under Project Merlin by more than £1 billion. 
Another bank likely to step in if the gap can’t be filled is the Green Investment Bank (GIB). Launching in April, the £3 billion GIB has made addressing the market failures of the Green Deal one of its top priorities. 

The Green Deal, which launches in October, will enable homeowners and business owners to gain access to upfront capital in order to complete energy efficiency measures, such as insulation, draught-proofing and lagging. It is the biggest scheme of its kind ever to be undertaken in the world and aims to insulate 14 million homes by 2020. A rule of the scheme is that the loan repayments must never exceed the savings on the energy bills throughout the repayment period. 

GDFC: widening membership
The GDFC is being set up to unlock the billions of pounds of investment required to bankroll the Green Deal by providing cheap loans to borrowers. The not-for-profit venture is a consortium of 16 mainly blue-chip companies, including British Gas, Kingfisher, E.ON, EDF Energy, HSBC, Lloyds TSB and Goldman Sachs, but it aims to be open to any accredited Green Deal provider. 

"The next stage we are just about to enter into is incorporating the company and widening its membership; making it an industry mutual," said Davies.

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