Are English SMEs disadvantaged in accessing Green Finance? A study of UK (bank and non-bank) debt finance provision

This study focuses on how to finance the green transition of established SMEs in England. Prior demand- side research demonstrated that surveyed SME access to debt finance for this transition is uneven across the UK and that smaller, less resourced SMEs in more remote locations from banking centres may be most disadvantaged. The analysis draws on 21 in-depth qualitative interviews with the supply-side stakeholders and providers of bank and alternative non-bank debt finance across the English regions, with a focus on the urban London and more rural South-West regions. Our interviews covered the English debt financing ecosystem, including financial trade associations, high street and specialist green/sustainable banks and non-bank alternative debt finance providers, finance brokers and business support providers such as local authorities.

Our main findings are that a two-tier SME financing approach has evolved in England, whereby larger, better resourced SMEs are more able to access traditional high street bank debt finance and supporting government green grants and subsidies. This results in a lower tier, vast majority of SMEs, that are smaller and less well- resourced that lack sufficient internal investment funds, information, support and access to the external finance (debt or grant) required to assist their green transition. We find that more green transition active lower tier SMEs seek alternative non-bank debt finance, either directly or through brokers. Brokers offer an important relationship manager role but are uneven in their performance and unregulated. Furthermore, the combination of limited and poorly targeted grant funding and landlord-tenant property restrictions hold back green transition.