After years of inflation, supply pressures and rising costs, UK SMEs face a new economic reality shaped by energy volatility and climate impact. John Phillipou, Managing Director of SME Lending and Chair of the FLA, explains why flexible finance and renewable partnerships could be key to their resilience and long-term growth.
After five years of unrelenting challenges, SMEs across the UK are facing a new economic reality shaped not just by inflationary pressures, but increasingly by energy volatility and rising operational costs. As extreme weather events become more frequent and infrastructure strains under the pressure, SMEs are finding themselves forced to rethink how they manage their energy usage and control costs.
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SMEs account for three-fifths of employment and around half of turnover in the UK private sector. In the face of these challenges, ensuring they can access finance to support their growth and resilience becomes all the more crucial. Yet with SMEs suffering a funding gap of £65 billion, it’s more apparent than ever that these complex problems require a fresh approach and innovative solutions.
Looking back on my three decades of financing business investment, it’s clear to me that the asset finance industry must move beyond transactional models to purely support growth, to embrace funding mechanisms that can also help businesses adapt, develop and save costs, ultimately leading to longer-term growth.
At Paragon Bank, we’ve taken a decisive step in this direction through our new partnership with HDM Energies. Together, we see the opportunity as sizeable. This funding initiative accelerates the rollout of rooftop solar for SMEs via a flexible Power Purchase Agreement (PPA) model, enabling businesses to access clean, reliable energy with no upfront costs, while locking in discounted energy bills and bringing extra energy certainty to the business users.
Think of it this way: we’re effectively aiming to build the equivalent energy source of a nuclear power station across the rooftops of as many as 4,000 small businesses.
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By GlobalDataThe benefits are immediate and tangible. SMEs pay only for the solar energy they consume – at a rate significantly lower than traditional suppliers – while surplus energy is stored or exported to the National Grid by HDM Energies, thus supporting wider energy resilience. This model eliminates cost volatility, reduces reliance on fossil fuels and helps businesses take control of their energy usage.
What sets this product apart is its accessibility. Even businesses with even modest roof space can participate, and we’re confident the scheme will deliver results across sectors including manufacturing, leisure, hospitality, education and community organisations. It’s a practical solution for SMEs wanting to reduce overheads, improve energy security and meet sustainability goals, all without the burden of capital investment. Better yet, it also helps property owners and landlords with sustainability goals by benefiting from an improved Energy Performance Certificate rating.
This partnership signals a broader shift in the asset finance industry, towards solutions that are driven by relationships and impact, and tailored to reflect real-world business needs. As part of our growing commitment to green lending, Paragon is actively supporting investment in technologies like solar panels, EV charging infrastructure, heat pumps and energy-efficient equipment. We recognise the value in these environmental upgrades as strategic investments which improve margins, enhance competitiveness and future-proof operations.
SMEs are the engine of the UK economy. Supporting them means helping them navigate today’s challenges while preparing for tomorrow’s opportunities and, at Paragon, we’re proud to be part of the solution. By combining flexible finance with smart technology, we’re helping SMEs unlock savings to lead the way in the UK’s economic recovery and transition to net zero.
