Potential Business Models for SME Companies
SMEs will be able to play a key role in delivering the Green Deal. Their local customer base and ability to engage them through other works will be a major link between potential customers and the Green Deal.
We would expect to see SMEs in the role of advisors (carrying out building assessments) and installing measures. We have also designed the Green Deal so that any size of organisation can become a Green Deal provider as long as they can fulfil the authorisation requirements and ongoing obligations. The main role of the Green Deal provider is to arrange the Green Deal finance plan under which the customer makes repayment for installation of works, so those ongoing obligations include responsibilities under the Consumer Credit Act 1974. SMEs who do not want to be Green Deal providers will be able to partner with a larger Green Deal Provider either to act in their supply chain or to act on their behalf.
There are therefore a number of potential business models for SMEs in the Green Deal. At a high level we have used the three models below to test our proposed Green Deal framework to ensure that we do not create unnecessary barriers to entry.
- SMEs entering the supply chain for Green Deal Providers (GDP): One model, based on existing practice, is for larger companies to use local suppliers of goods and services. Under this model a GDP would market the Green Deal to customers and then pass on the installation work to companies engaged in its supply chain. This could also work with Local Authorities becoming GDPs and then creating local supply chains to maximise the local economic benefits.
- SMEs working in partnership supply chain with GDPs: Under this model SMEs would be the face of the Green Deal and make full use of their local networks and customer base. The GDP would, effectively, become a silent partner behind the scenes, providing the financing. One or a number of SMEs could discharge the ongoing obligations of the Green Deal Provider including assessment, installation, customer services and ongoing customer relations.
- SMEs in partnership as agents with GDPs: SMEs could become agents for these GDPs and would be able to offer their customers access to Green Deal financing following an assessment. They could find clients for GDPs thus providing access for their customers and at the same time, increasing the remit of their business. This model could involve SMEs directly becoming agents of GDPs, or becoming agents through their trade body (who could partner with a finance provider on their behalf). Alternatively, trade bodies or trade suppliers could become GDPs on behalf of their members/customers.
Why are you creating barriers for SME companies?
- We are not. We are working with the existing structures in the market and through existing certification bodies to set robust – but proportionate – standards for all those who will supply into the Green Deal and interact with the wider Green Deal as assessors and providers.
- By setting minimum standards which apply to all we will ensure that large players cannot undercut on standards or quality, it creates a level playing field ensuring protection for both business and consumers.
- We have worked very closely with industry to design our model and will continue to engage to ensure we are not creating unnecessary barriers for SMEs
- However, we will not dictate the business models SMEs should pursue. This is a framework for the market to take forward.
In reality won’t it be too difficult for SME companies to compete against large companies?
- Smaller companies play a vital role in the current supply chain and we have designed the Green Deal to be accessible to them.
- This is an opportunity for SMEs as much as large installers and each will need to find their unique selling point.
- Provided SMEs meet the required standards and can access finance, they have the ability to continue serving the market while evolving with it. The Green Deal and ECO combined will mean the market is larger – which is good for everyone.
How will a small trader be able to get hold of financing?
- We are exploring a number of ways in which SMEs will be able to access finance, including through their trade bodies.
- A variety of financial service firms and other intermediaries (such as large distributors) are already gearing up to play the role of finance provider to companies wishing to engage in the Green Deal.