Loan funding for pre-planning work

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Country: 
UK

Bath and West Community Energy raised £1 million of debt finance from SSE, which included £200,000 as a contingent loan (at the time a SSE one-off trial), to invest in at risk pre-planning work associated with their renewable energy project development. They found that while the scale of their project initially made it very difficult to get bank finance for, once their projects were established through the SSE loan, banks were likely to be more interested in re-financing the projects, thereby enabling BWCE to re-invest the funds freed up in further projects. The loan therefore played a crucial enabling role in helping to establish BWCE as a financially viable, locally owned community enterprise. Debt funding was deemed appropriate given the stable long term income streams and enhancement to the returns for investors. The debt is secured on the assets of BWCE, so ultimately the loan provider could seize the assets in the event of default. However, individual members have no liability to the debt provider, other than the financial risk to their invested capital. The loan is fixed interest; the cost of servicing is known and built into the financial projections. The loan is repayable only if the project is successful, with repayment taking place over a 15 year period or sooner if BWCE so chooses. Following their share issue they had a strong equity base which could, if required, enable them to repay the majority of the loan. SSE is also investing £20,000 as equity in BWCE, showing the confidence they have in the business.