P2 Financing
Pollution Prevention (P2) projects often have costs (e.g., new equipment, contractor services) that require cash disbursements upfront, with potential savings (avoided costs) accruing over time. For small and medium-sized enterprises (SMEs), these projects must often compete for limited resources with other internal business priorities that are essential for revenue generation. Small businesses may not be used to borrowing money from external sources or may not realize that it’s possible to do so at affordable terms.
Some lenders can make loans for P2 investment more accessible to SMEs by using a variety of techniques to lower or spread financial risk thereby reducing the borrower’s cost of financing (e.g., lower interest rates and/or longer payback periods to decrease regular loan payments). P2 financing tools can make small business loans more attractive to lenders. Small businesses can contact their lenders and state P2 programs for more information on options for financing P2 projects.
Landscape of P2 Financing Tools
There are a variety of funding sources available to explore for financing P2 interventions.
Commercial Financing
- Traditional Lending—Commercial banks often have special lending programs for small and medium-sized businesses.
- Community Development Finance Institutions (CDFIs)—CDFIs are private institutions that deliver affordable lending. By financing community businesses, CDFIs spark job growth and retention in hard-to serve markets. CDFIs often have low interest loan programs to support small business P2 investments. Find your local CDFI.
- Impact Investing—New types of investors are providing affordable finance to businesses supporting P2.
Government Resources and Programs
- State P2 Programs—Many state environmental agencies have P2 programs which may be able to help connect businesses with P2 financing assistance or information.
- State Governmental Financial Incentives and Resources—Governments have many financial incentives and resources available for businesses. The CDFA State Financing Program Directory catalogs over 350 development finance programs offered by states. See information on special state financing programs for businesses.
- Environmental Financial Advisory Board Workgroup- In October of 2022, The Environmental Financial Advisory Board (EFAB) P2 Workgroup published a report titled “Catalyzing Pollution Prevention Finance (pdf)”. The report provides recommendations into three categories of immediately actionable items that reflect current capacity and funding levels within the P2 program. The EPA Office of Chemical Safety and Pollution Prevention expressed appreciation for the report through their letter of acknowledgement (pdf).
Green Banks
- Green Banks—These entities, such as Green Bank Network members, work with private-sector investors to create low-cost, long-term financing to maximize the use of public funds.
- Clearly assess operations and maintenance (O&M) costs, project financial savings, and calculate return on investment (ROI) to establish for lenders it is a wise investment.
- Be prepared to clearly outline the environmental benefits of the pollution reduction that would result.
- Talk with your state’s P2 program, as they may be able to provide examples of how others have approached the P2 improvement. This can be used to establish to potential lenders that the approach has been implemented by others and that it works. This can help to reduce uncertainty and answer lenders’ questions.