In the current wave of circular business model innovation (BMI), access to finance for BMI emerged as a key constraint but remains unaddressed in the literature. We fill that gap by studying access to bank finance for BMI using the current wave of circular BMI as an empirical base. We study the importance of different business model components for bank lending techniques using qualitative data obtained from banks and firms engaged in circular BMI. On the one hand, we assess bank willingness and lending technologies used to lend to enterprises that innovate towards circular business models. On the other hand, we document financing challenges of circular enterprises that applied for bank credit. Our results show that finance for circular business model innovation creates a shift from assessment based on (standardized) assets towards (future) cash flows as a basis for bank lending. We also find that per lending technology, different components of the business model are assessed by banks. Banks mostly assess BMI based on evidence of future cash flows, relating to the value capture part of the business model and, in the case of account receivables, on contract terms and quality of customers. Building relationships with banks, suppliers and customers shows to be a promising route for financing BMI. Asset-based lending for BMI is underdeveloped due to firm- and context-specific assets (resources) but can be improved by standardization, modularity and flexibility as well as secondary market development. Our findings have strategic implications for innovative firms looking for bank finance and banks aiming to finance (circular) BMI.
