SFL team presents solutions for circular firms to improve access to bank finance
Team members of Sustainable Finance Lab have published a new article on how circular firms can increase their access to bank finance. A crucial barrier to the growth of circular initiatives. Although a well-known barrier, this paper made the effort to analyse ways to improve access to bank finance for innovative circular business models. The paper can be downloaded here.
Three core strategies were found to facilitate successful bank finance for circular businesses:
- Proving future cash flows. The key strategy that banks look for is ‘proof’ of future cash flows. This can be done by designing stable contracts, requesting commitment from customers (e.g. pre-orders) and increasing insight in the quality of those customers.
- Relationship building. Not only with with suppliers in the value but also with banks and customers. Building relationships (networks) are key to healthy circular firms and enabling finance. Access to finance can be facilitated directly through relationship building with banks (for lending) and customers (for crowdfunding). Indirectly, strong networks reduce financial risk by increasing the likelihood of the successful delivery of a circular market offering, and by sharing risks between actors in the supply chain.
- Designing long-lasting, modular, circular products. Designing products in such a way that products, components and materials are increasingly standardised and transparent (i.e. using a materials passport), improves their long-term asset value. This makes them more likely to be suitable as collateral for banks.
Download the article here.
Sustainable Finance Lab is working on financing the circular economy for over six years. SFL brings together circular practitioners, financial institutions, and academics to bridge the gap between theory and practice. If you would like to know more or simply connect, don’t hesitate to reach out to us: e.achterberg@uu.nl or h.s.toxopeus@uu.nl.
