Small businesses struggling for credit during the credit crunch received a boost today as the Carbon Trust announced it has doubled the maximum size of its interest-free Energy Efficiency loans from £100,000 to £200,000 – and increased the overall loans pot by 45 per cent to £31 million this year.

The move is in response to the difficult market conditions and will enable small businesses to implement energy saving projects on a far more ambitious scale than previously possible. It is expected that the new scheme will generate 20 per cent more carbon and energy savings this year than would have been possible under the previous limit.

The loans, which are unsecured, interest-free and repayable over a period of up to four years, provide a cost effective way for small businesses to upgrade equipment with a more energy efficient version – thereby reducing energy bills and cutting their carbon footprint.

Loans are often offered on a partial basis, but the economic climate has made availability of alternative sources of financing more difficult. Large projects that can deliver the necessary carbon savings will now be eligible for loans that fund a greater proportion or total project cost.

It is expected that the larger loans will also lead to more applications from larger, more energy-intensive SMEs.

Hugh Jones, Solutions Director at the Carbon Trust, said: “We know that SMEs want to play their part in tackling climate change, and reduce their energy costs at the same time. But in the current economic climate, the tighter credit conditions are making it harder for small businesses to find alternative sources of funding. “We know that some companies found that the £100,000 limit made it hard for them to finance the more ambitious projects they wanted to invest in, such as large lighting installations, boilers projects, or multiple equipment purchases such as variable speed drives with compressors and heat recovery equipment. “£200,000 loans pave the way for companies to take on such projects and significantly reduce both their carbon emissions and their energy bills, which in turn will enable them to reduce operational costs and become more competitive.”

The £31 million pot is nearly £10 million larger than the £21.5 million allocated in 2007/08. Loans allocated last year will reduce carbon emissions by over 60,000 tonnes of carbon dioxide each year and result in cost savings of nearly £9 million a year.

David Boomer, Head of Energy Efficiency & Climate Change at the Institute of Directors, said: “This is excellent news. This significant increase in the provision of these loans by the Carbon Trust clearly underlines the Government’s commitment to supporting businesses to reduce their energy costs and associated carbon emissions. Even at this time of economic uncertainty it is still vital that businesses continue to look for opportunities to invest in more energy efficient equipment and thereby reduce their carbon emissions. The Institute of Directors would strongly encourage businesses to make use of this opportunity and to work closely with the Carbon Trust to improve their energy efficiency and reduce their energy costs.”

Since its inception, the Carbon Trust has helped business save around 17 million tonnes of carbon dioxide, with associated financial savings of around £1 billion.