Sustainable Business Financing: Green Loans and Eco-Friendly Investments

Want to find business funding that's just as good for the planet as it is for your balance sheet? We've got the scoop.

The global market for sustainable loans exploded by 17% in 2024, topping EUR 907 billion and setting a record in just the last year.

But wait, there's more. Eco-friendly business financing comes in all shapes and sizes these days. Interest rates are coming down. Terms are getting more flexible. And the number of options for borrowers just keeps going up.

Here's What We Cover:

• What's Green Business Financing?
• What is a Green Business Loan?
• Sustainability-Linked Loans
• The Benefits of Going Green with Business Financing

What's Green Business Financing?

"Green" business financing is the collective term for funding products and services that help borrowers meet environmental goals while also fueling company growth.

Instead of just judging your ability to repay, green lenders also evaluate the potential environmental impact of your projects.

The criteria can include:

• Carbon footprint reduction
• Energy efficiency
• Renewable energy adoption
• Water conservation
• Waste reduction and recycling
• Sustainable materials and packaging
• Pollution prevention
• Biodiversity conservation and restoration
• Green transportation and infrastructure

If you're pursuing any of these objectives, you qualify for special loan rates and terms.

What Is a Green Business Loan?

Green loans are traditional loans that must be used to fund specific projects creating verifiable environmental benefits.

They are designed to provide a way for businesses to implement projects that are often considered too risky by traditional lenders.

The return on investment may not be high enough to cover the risk.

The focus on green projects, including both the "brown to green" and "green to green" categories.

"Brown to green" projects transition an existing asset to become environmentally sustainable. Some examples include:

• Retrofitting with energy-efficient equipment.
• Installing renewable energy sources.
• Implementing recycling systems.
• Upgrading water conservation measures.

"Green to green" is the new construction or expansion of an environmentally friendly asset.

Green to Green Projects

Examples of "green to green" projects may include:

• Renewable energy facilities.
• Energy-efficient buildings.
• Sustainable agriculture practices.
• Electric vehicle charging infrastructure.

The borrower can choose a traditional loan product but must provide a plan to meet the specific green projects.

Requirements like regular reporting on the environmental progress associated with the green projects funded by the loan can be a part of the lending package.

Sustainability-Linked Loans

A relatively new type of eco-friendly business loan is the so-called sustainability-linked loan (SLL).

SLLs are conventional business loans with interest rates or other terms that change based on the borrower's overall sustainability performance.

Banks give a lower interest rate if your company hits environmental targets and a higher rate if it misses them.

That creates incentives to continually improve corporate ESG (environmental, social, and governance) metrics.

Customers, employees, and shareholders demand it.

Why should you pay attention to our study? Because 71% of C-suite leaders already view ESG investment as a competitive advantage for their company.

And the global carbon credit market was valued at $480.11 billion in 2023, so it's clear how seriously businesses are taking their environmental responsibilities.

The Benefits of Going Green with Business Financing

There are a lot of reasons to consider eco-friendly business financing when you need a loan.

The Sustainable Business Financing Revolution

First, of course, is the positive impact on the environment.

Financing for green business goes well beyond support for environmental projects.

Your bottom line will thank you, too, with:

• Lower costs. Many sustainable loans and other products come with reduced interest rates, longer repayment periods, and lower fees.
• Tax incentives. Governments offer tax breaks to companies that make improvements for the environment.
• Competitive advantage. Sustainable business practices are a real draw for customers these days. Financing them helps you compete.
• Regulatory advantages. You can avoid expensive fines or mandatory upgrades by keeping on the right side of environmental laws.
• Reduced risk. In many ways, sustainable projects are less risky. They're designed to drive down costs by lowering energy bills or boosting efficiency.

Good News for Business Owners Who Care About the Environment

The Best Place to Find Eco-Friendly Funding

But how do you actually get your hands on the money? We've covered this stuff for years, and we've seen the options for green funding explode.

Smart Ways to Find Sustainable Business Financing

You've got more choices than ever.

This section breaks them all down. From big banks with new green lending programs to government programs specifically designed to support environmental efforts, we'll show you how to secure business funding.

• Traditional banks with green lending programs.
• Online green lenders.
• Green bonds and impact investors.
• Government programs supporting sustainability.
• Trade and industry associations with green financing resources.
• Small business development centers.

This list isn't exhaustive, by any means. It's just what we recommend most frequently to business owners who ask us for help.

Who's Going Green with Business Financing?

Access to Sustainable Funding Sources

Green is the new normal in business financing, and there are some trends and statistics that back up what we're saying.

The Sustainable Business Financing Revolution

We were surprised by just how big the global market for sustainable business loans has gotten in just the last few years.

• 2022: EUR 689.3 billion
• 2023: EUR 772.2 billion
• 2024: EUR 907.9 billion

Check out our analysis of a major sustainable financing study by Berlin-based bank BBVA that shows the explosive growth of sustainable business financing around the world.

The Sustainable Business Financing Revolution

In addition to the overall growth of the sustainable business financing market, we wanted to pull out a few numbers that show just how important sustainable practices are to business owners, investors, and employees:

• 60% of Americans say environmental action is a major or critical part of their job.
• 48% of consumers will pay more for environmentally friendly products.
• 71% of C-suite leaders view sustainability investment as a competitive advantage for their business.
• Over one-fifth of private capital fundraising was allocated to ESG-labeled funds in 2024.
• 55% of CEOs expect major revenue from sustainability investments by 2030.

The Sustainable Business Financing Revolution

Conclusion

We hear a lot from borrowers who tell us they didn't even realize they qualified for a green loan until they talked to us.

Traditional lenders are still slow to change.

They have rigid definitions of what counts as "green" and strict requirements on the specific projects that are eligible for special terms.

Talk to an experienced sustainable financing expert who can help you find the right product and take advantage of every incentive available.